NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Business and Significant Accounting Policies
Description of Business
Sabre Corporation is a Delaware corporation formed in December 2006. On March 30, 2007, Sabre Corporation acquired Sabre Holdings Corporation (“Sabre Holdings”). Sabre Holdings is the sole subsidiary of Sabre Corporation. Sabre GLBL Inc. (“Sabre GLBL”) is the principal operating subsidiary and sole direct subsidiary of Sabre Holdings. Sabre GLBL or its direct or indirect subsidiaries conduct all of our businesses. In these consolidated financial statements, references to “Sabre,” the “Company,” “we,” “our,” “ours,” and “us” refer to Sabre Corporation and its consolidated subsidiaries unless otherwise stated or the context otherwise requires.
We connect people and places with technology that reimagines the business of travel. Effective the first quarter of 2018, we operate through
three
business segments: (i) Travel Network, our global travel marketplace for travel suppliers and travel buyers, (ii) Airline Solutions, a broad portfolio of software technology products and solutions for airlines and other travel suppliers, and (iii) Hospitality Solutions, an extensive suite of leading software solutions for hoteliers.
Basis of Presentation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). We consolidate all majority-owned subsidiaries and companies over which we exercise control through majority voting rights. No entities are consolidated due to control through operating agreements, financing agreements or as the primary beneficiary of a variable interest entity. The consolidated financial statements include our accounts after elimination of all significant intercompany balances and transactions. All dollar amounts in the financial statements and the tables in the notes, except per share amounts, are stated in thousands of U.S. dollars unless otherwise indicated. All amounts in the notes reference results from continuing operations unless otherwise indicated.
The preparation of these annual financial statements in conformity with GAAP requires that certain amounts be recorded based on estimates and assumptions made by management. Actual results could differ from these estimates and assumptions. Our accounting policies, which include significant estimates and assumptions, include, among other things, estimation of the collectability of accounts receivable, estimation of future cancellations of bookings processed through the Sabre global distribution system ("GDS"), revenue recognition for software arrangements, determination of the fair value of assets and liabilities acquired in a business combination, determination of the fair value of derivatives, the evaluation of the recoverability of the carrying value of intangible assets and goodwill, assumptions utilized in the determination of pension and other postretirement benefit liabilities, the evaluation of the recoverability of capitalized implementation costs, assumptions utilized to evaluate the recoverability of deferred customer advance and discounts, estimation of loss contingencies, and evaluation of uncertainties surrounding the calculation of our tax assets and liabilities.
In the first quarter of 2018, we adopted the comprehensive update to revenue recognition guidance Revenue from Contracts with Customers ("ASC 606"), which replaced the previous standard ("ASC 605"), using the modified retrospective approach, applied to contracts that were not completed as of the adoption date. Our 2018 results are reported under ASC 606, while results prior to 2018 are reported under ASC 605. Under ASC 606, revenue is recognized when a company transfers the promised goods or services to customers in an amount that reflects the consideration that is expected to be received for those goods and services. See Note
2. Revenue from Contracts with Customers
.
Revenue Recognition
Travel Network and Hospitality Solutions’ revenue recognition is primarily driven by GDS and central reservation system ("CRS") transactions, respectively. Airline Solutions’ revenue recognition is primarily driven by passengers boarded or other variable metrics relevant to the software service provided. Timing of revenue recognition is primarily based on the consistent provision of services in a stand-ready series SaaS environment and the amount of revenue recognized varies with the volume of transactions processed.
Performance Obligations
A stand-ready series is a performance obligation, which is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account under ASC 606. The transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Most of our contracts in the Travel Network and Hospitality Solutions businesses have a single performance obligation. In the Airline Solutions business, many of our contracts may have multiple performance obligations, which generally include software and product solutions through SaaS and hosted delivery, and other service fees. In addition, at times we enter into agreements with customers to provide access to Travel Network’s GDS and, at or near the same time, enter into a separate agreement to provide Airline Solutions' software solutions through SaaS and hosted delivery, resulting in multiple performance obligations within a combined agreement.
Our significant product and services and methods of recognition are as follows:
Stand-ready series revenue recognition
Travel Network
—Travel Network's service offering is a GDS or GDS services linking and engaging transactions between travel agents (those that seek travel on behalf of travelers) and travel suppliers (such as airlines, hotels, car rental companies and cruise lines). Revenue is generated from contracts with the travel suppliers as each booking is made or transaction occurs and represents a stand-ready performance obligation where our systems perform the same service each day for the customer, based on the customer’s level of usage. Variability in the amounts billed to the customer and revenue recognized coincides with the customer’s level of usage or value received by the customer. Travel Network's revenue for air transactions is recognized at the time of booking of the reservation, net of estimated future cancellations. Travel Network's revenue for car rental, hotel transactions and other travel providers is recognized at the time the reservation is used by the customer.
Airline Solutions and Hospitality Solutions
—Airline Solutions and Hospitality Solutions provide technology solutions and other professional services to airlines, hotels and other business consumers in the travel industry. The technology solutions are primarily provided in a SaaS or hosted environment. Customers are normally charged an upfront solutions fee and a recurring usage-based fee for the use of the software, which represents a stand-ready performance obligation where our systems perform the same service each day for the customer, based on the customer’s level of usage. Upfront solutions fees are recognized primarily on a straight-line basis over the relevant contract term, upon cut-over of the primary SaaS solution. Variability in the usage-based fee that does not align with the value provided to the customer can result in a difference between billings to the customer and the timing of contract performance and revenue recognition, which may result in the recognition of a contract asset. This can result in a requirement to forecast expected usage-based fees and volumes over the contract term in order to determine the rate for revenue recognition. This variable consideration is constrained if there is an inability to reliably forecast this revenue.
Contract Assets
Our contract assets include deferred customer advances and discounts, which are capitalized and amortized in future periods as the related revenue is earned. The contract assets also include revenue recognized for services already transferred to a customer, for which the fulfillment of another contractual performance obligation is required, before we have the unconditional right to bill and collect based on contract terms. These assets are reviewed for recoverability on a periodic basis based on a review of impairment indicators. Deferred advances to customers and customer discounts are reviewed for recoverability based on future contracted revenues and estimated direct costs of the contract. For the
year ended December 31, 2018
, we did not impair any of our contract assets as a result of the related contract becoming uncollectable, modified or canceled. See Note 4. Impairments and Related Charges regarding 2017 impairments. Contracts are priced to generate total revenues over the life of the contract that exceed any discounts or advances provided and any upfront costs incurred to implement the customer contract.
Other revenue recognition patterns
Airline Solutions also provides other services including development labor or professional consulting. These services can be sold separately or with other products and services, and Airline Solutions may bundle multiple technology solutions in one arrangement with these other services. Revenue from other services consisting of development services that represent minor configuration or professional consulting is generally recognized over the period the services are performed or upon completed delivery.
Airline Solutions also directly licenses certain software to its customers where the customer obtains control of the license. Revenue from software license fees is recognized when the customer gains control of the software enabling them to directly use the software and obtain substantially all of the remaining benefits. Fees for ongoing software maintenance are recognized ratably over the life of the contract. Under these arrangements, often we are entitled to minimum fees which are collected over the term of the agreement, while the revenue from the license is recognized at the point when the customer gains control, which results in current and long-term unbilled receivables for these arrangements.
Variability in the amounts billed to the customer and revenue recognized coincides with the customer’s level of usage with the exception of upfront solution fees, variable consideration, license and maintenance agreements and other services including development labor and professional consulting. Contracts with the same customer which are entered into at or around the same period are analyzed for revenue recognition purposes on a combined basis across our businesses which can impact our revenue recognized.
For contracts with multiple performance obligations where the contracted price differs from the standalone selling price ("SSP") for any distinct good or service, we may be required to allocate the contract’s transaction price to each performance obligation using our best estimate for the SSP. SSP is assessed annually using a historical analysis of contracts with customers executed in the most recently completed calendar year to determine the range of selling prices applicable to distinct good or service. In making these judgments, we analyze various factors, including value differentiators, customer segmentation and overall market and economic conditions. Based on these results, the estimated SSP is set for each distinct product or service delivered to customers.
Revenue recognition from our Airline Solutions business requires significant judgments such as identifying distinct performance obligations including material rights within an agreement, estimation of SSP, determination of whether variable pricing within a contract meets the allocation objective and forecasting future volumes. For a small subset of our contracts, we are required to forecast volumes as a result of pricing variability within the contract in order to calculate the rate for revenue recognition. Any changes in these judgments and estimates could have an impact on the revenue recognized in future periods.
We evaluate whether it is appropriate to record the gross amount of our revenues and related costs by considering whether the entity is a principal (gross presentation) or an agent (net presentation) by evaluating the nature of our promise to the customer. We report revenue net of any revenue based taxes assessed by governmental authorities that are imposed on and concurrent with specific revenue producing transactions.
Incentive Consideration
Certain service contracts with significant travel agency customers contain booking productivity clauses and other provisions that allow travel agency customers to receive cash payments or other consideration. We establish liabilities for these commitments and recognize the related expense as these travel agencies earn incentive consideration based on the applicable contractual terms. Periodically, we make cash payments to these travel agencies at inception or modification of a service contract which are capitalized and amortized to cost of revenue over the expected life of the service contract, which is generally
three
to
five
years. Deferred charges related to such contracts are recorded in other assets, net on the consolidated balance sheets. The service contracts are priced so that the additional airline and other booking fees generated over the life of the contract will exceed the cost of the incentive consideration provided. Incentive consideration paid to the travel agency represents a commission paid to the travel agency for booking travel on our GDS.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs incurred by our continuing operations totaled
$19 million
,
$18 million
and
$24 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
Cash and Cash Equivalents and Restricted Cash
We classify all highly liquid instruments, including money market funds and money market securities with original maturities of three months or less, as cash equivalents.
Allowance for Doubtful Accounts and Concentration of Credit Risk
We evaluate the collectability of our accounts receivable based on a combination of factors. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us, such as bankruptcy filings or failure to pay amounts due to us or others, we record a specific reserve for bad debts against amounts due to reduce the recorded receivable to the amount we reasonably believe will be collected. For all other customers, we record reserves for bad debts based on historical experience and the length of time the receivables are past due. We maintained an allowance for doubtful accounts of approximately
$45 million
and
$43 million
at
December 31, 2018
and
2017
, respectively.
Our customers are primarily located in the United States, Canada, Europe, Latin America and Asia, and are concentrated in the travel industry.
We generate a significant portion of our revenues and corresponding accounts receivable from services provided to the commercial air travel industry.
As of
December 31, 2018
and
2017
, approximately
$334 million
, or
81%
, and
$357 million
, or
77%
,
respectively, of our trade accounts receivable were attributable to these customers. Our other accounts receivable are generally due from other participants in the travel and transportation industry. Substantially all of our accounts receivable represents trade balances. We generally do not require security or collateral from our customers as a condition of sale.
We regularly monitor the financial condition of the air transportation industry. We believe the credit risk related to the air carriers’ difficulties is significantly mitigated by the fact that we collect a significant portion of the receivables from these carriers through the Airline Clearing House and other similar clearing houses (“ACH”).
As of
December 31, 2018
, approximately
61%
of our air customers make payments through the ACH which accounts for approximately
94%
of our air revenue.
For these carriers, we believe the use of ACH mitigates our credit risk with respect to airline bankruptcies. For those carriers from which we do not collect payments through the ACH or other similar clearing houses, our credit risk is higher. We monitor these carriers and account for the related credit risk through our normal reserve policies.
Derivative Financial Instruments
We recognize all derivatives on the consolidated balance sheets at fair value. If the derivative is designated as a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are offset against the change in fair value of the hedged item through earnings (a “fair value hedge”) or recognized in other comprehensive income until the hedged item is recognized in earnings (a “cash flow hedge”). For derivative instruments not designated as hedging instruments, the gain or loss resulting from the change in fair value is recognized in current earnings during the period of change. No hedging ineffectiveness was recorded in earnings during the periods presented.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization, which is calculated on the straight-line basis. Our depreciation and amortization policies are as follows:
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|
|
Buildings
|
Lesser of lease term or 35 years
|
Leasehold improvements
|
Lesser of lease term or useful life
|
Furniture and fixtures
|
5 to 15 years
|
Equipment, general office and computer
|
3 to 5 years
|
Software developed for internal use
|
3 to 5 years
|
We capitalize certain costs related to our infrastructure, software applications and reservation systems under authoritative guidance on software developed for internal use. Capitalizable costs consist of (a) certain external direct costs of materials and services incurred in developing or obtaining internal use computer software and (b) payroll and payroll related costs for employees who are directly associated with and who devote time to our GDS and web-related development projects. Costs incurred during the preliminary project stage or costs incurred for data conversion activities and training, maintenance and general and administrative or overhead costs are expensed as incurred. Costs that cannot be separated between maintenance of, and relatively minor upgrades and enhancements to, internal use software are also expensed as incurred. See Note
6. Balance Sheet Components
, for amounts capitalized as property and equipment in our consolidated balance sheets. Depreciation and amortization of property and equipment totaled
$288 million
,
$256 million
and
$226 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively. Amortization of software developed for internal use, included in depreciation and amortization, totaled
$236 million
,
$203 million
and
$176 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
We also evaluate the useful lives of these assets on an annual basis and test for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets used in combination to generate cash flows largely independent of other assets may not be recoverable. We did not record any property and equipment impairment charges for the years ended
December 31, 2018
,
2017
and
2016
.
Business Combinations
Business combinations are accounted for under the acquisition method of accounting. Under this method, the assets acquired and liabilities assumed are recognized at their respective fair values as of the date of acquisition. The excess, if any, of the acquisition price over the fair values of the assets acquired and liabilities assumed is recorded as goodwill. For significant acquisitions, we utilize third-party appraisal firms to assist us in determining the fair values for certain assets acquired and liabilities assumed. The measurement of these fair values requires us to make significant estimates and assumptions which are inherently uncertain.
Adjustments to the fair values of assets acquired and liabilities assumed are made until we obtain all relevant information regarding the facts and circumstances that existed as of the acquisition date (the “measurement period”), not to exceed one year from the date of the acquisition. We recognize recognize measurement-period adjustments in the period in which we determine the amounts, including the effect on earnings of any amounts we would have recorded in previous periods if the accounting had been completed at the acquisition date.
Goodwill and Intangible Assets
Goodwill is the excess of the purchase price over the fair value of identifiable tangible and intangible assets acquired in business combinations. Goodwill is not amortized but is reviewed for impairment on an annual basis or more frequently if events and circumstances indicate the carrying amount may not be recoverable. Definite-lived intangible assets are amortized on a straight-line basis and assigned useful economic lives of
two
to
thirty
years, depending on classification. The useful economic lives are evaluated on an annual basis.
We perform our annual assessment of possible impairment of goodwill as of October 1 of each year. We begin with the qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying value before applying the quantitative assessment described below. If it is determined through the evaluation of events or circumstances that the carrying value may not be recoverable, we perform a comparison of the estimated fair value of the reporting unit to which the goodwill has been assigned to the sum of the carrying value of the assets and liabilities of that unit. If the sum of the carrying value of the assets and liabilities of a reporting unit exceeds the estimated fair value of that reporting unit, the carrying value of the reporting unit’s goodwill is reduced to its fair value through an adjustment to the goodwill balance, resulting in an impairment charge. We have
three
reporting units associated with our continuing operations: Travel Network, Airline Solutions and Hospitality Solutions. We did not record any goodwill impairment charges for the years ended
December 31, 2018
,
2017
and
2016
. See Note
5. Goodwill and Intangible Assets
, for additional information.
Definite-lived intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of definite lived intangible assets used in combination to generate cash flows largely independent of other assets may not be recoverable. If impairment indicators exist for definite-lived intangible assets, the undiscounted future cash flows associated with the expected service potential of the assets are compared to the carrying value of the assets. If our projection of undiscounted future cash flows is in excess of the carrying value of the intangible assets, no impairment charge is recorded. If our projection of undiscounted cash flows is less than the carrying value, the intangible assets are measured at fair value and an impairment charge is recorded based on the excess of the carrying value of the assets to its fair value. We did not record material intangible asset impairment charges for the years ended
December 31, 2018
,
2017
and
2016
. See Note
5. Goodwill and Intangible Assets
, for additional information.
Equity Method Investments
We utilize the equity method to account for our interests in joint ventures and investments in stock of other companies that we do not control but over which we exert significant influence. We periodically evaluate equity and debt investments in entities accounted for under the equity method for impairment by reviewing updated financial information provided by the investee, including valuation information from new financing transactions by the investee and information relating to competitors of investees when available. We own voting interests in various national marketing companies ranging from
20%
to
49%
, a voting interest of
40%
in ESS Elektroniczne Systemy Spzedazy Sp. zo.o, and a voting interest of
20%
in Asiana Sabre, Inc. The carrying value of these investments in joint venture amounts to
$24 million
as of
December 31, 2018
and
2017
.
Contract Acquisition Costs and Capitalized Implementation Costs
We incur contract acquisition costs related to new contracts with our customers in the form of sales commissions based on estimated contract value for our Airline Solutions and Hospitality Solutions businesses. These costs are capitalized and reviewed for impairment on an annual basis. We generally amortize these costs, and those for renewals, over the average contract term for those businesses, excluding commissions on contracts with a term of one year or less, which are generally expensed in the period earned and recorded within selling, general and administrative expenses.
We incur upfront costs to implement new customer contracts under our SaaS revenue model. We capitalize these costs, including (a) certain external direct costs of materials and services incurred to implement a customer contract and (b) payroll and payroll related costs for employees who are directly associated with and devote time to implementation activities. Capitalized implementation costs are amortized on a straight-line basis over the related contract term, ranging from
three
to
ten years
, as they are recoverable through deferred or future revenues associated with the relevant contract. These assets are reviewed for recoverability on a periodic basis or when an event occurs that could impact the recoverability of the assets, such as a significant contract modification or early renewal of contract terms. Recoverability is measured based on the future estimated revenue and direct costs of the contract compared to the capitalized implementation costs. See Note
6. Balance Sheet Components
and Note 2. Revenue from Contracts with Customers, for amounts capitalized within other assets, net in our consolidated balance sheets. Amortization of capitalized implementation costs, included in depreciation and amortization, totaled
$38 million
,
$40 million
and
$37 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively. See Note 4. Impairment and Related Charges.
Income Taxes
Deferred income tax assets and liabilities are determined based on differences between financial reporting and income tax basis of assets and liabilities and are measured using the tax rates and laws in effect at the time of such determination. We regularly review our deferred tax assets for recoverability and a valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. In assessing the need for a valuation allowance, we make estimates and assumptions regarding projected future taxable income, our ability to carry back operating losses to prior periods, the reversal of deferred tax liabilities and implementation of tax planning strategies. We reassess these assumptions regularly which could cause an increase or decrease to the valuation allowance resulting in an increase or decrease in the effective tax rate, and could materially impact our results of operations.
We recognize liabilities when we believe that an uncertain tax position may not be fully sustained upon examination by the tax authorities. Liabilities are recognized for uncertain tax positions that do not pass a two-step approach for recognition and measurement. First, we evaluate the tax position for recognition by determining if based solely on its technical merits, it is more likely than not to be sustained upon examination. Secondly, for positions that pass the first step, we measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. We recognize penalties and interest accrued related to income taxes as a component of the provision for income taxes.
The Tax Cuts and Jobs Act (the “TCJA”), which was enacted on December 22, 2017, imposes a tax on global low-taxed intangible income (“GILTI”) in tax years beginning after December 31, 2017. GILTI provisions are applicable to certain profits of a controlled foreign corporation that exceed the U.S. stockholder's deemed “routine” investment return under the TCJA and results in income includable in the return of U.S. shareholders. We recognize liabilities, if any, related to this provision of the TCJA in the year in which the liability arises and not as a deferred tax liability.
Pension and Other Postretirement Benefits
We recognize the funded status of our defined benefit pension plans and other postretirement benefit plans in our consolidated balance sheets. The funded status is the difference between the fair value of plan assets and the benefit obligation as of the balance sheet date. The fair value of plan assets represents the cumulative contributions made to fund the pension and other postretirement benefit plans which are invested primarily in domestic and foreign equities and fixed income securities. The benefit obligation of our pension and other postretirement benefit plans are actuarially determined using certain assumptions approved by us. The benefit obligation is adjusted annually in the fourth quarter to reflect actuarial changes and may also be adjusted upon the adoption of plan amendments. These adjustments are initially recorded in accumulated other comprehensive income (loss) and are subsequently amortized over the life expectancy of the plan participants as a component of net periodic benefit costs.
Equity-Based Compensation
We account for our stock awards and options by recognizing compensation expense, measured at the grant date based on the fair value of the award, on a straight-line basis over the award vesting period, giving consideration as to whether the amount of compensation cost recognized at any date is equal to the portion of grant date value that is vested at that date. We recognize equity-based compensation expense net of any actual forfeitures.
We measure the grant date fair value of stock option awards as calculated by the Black-Scholes option-pricing model which requires certain subjective assumptions, including the expected term of the option, the expected volatility of our common stock, risk-free interest rates and expected dividend yield. The expected term is estimated by using the “simplified method” which is based on the midpoint between the vesting date and the expiration of the contractual term. We utilized the simplified method due to the lack of sufficient historical experience under our current grant terms. The expected volatility is based on the historical volatility of our stock price. The expected risk-free interest rates are based on the yields of U.S. Treasury securities with maturities appropriate for the expected term of the stock options. The expected dividend yield was based on the calculated yield on our common stock at the time of grant assuming annual dividends totaling
$0.56
per share for awards granted in
2018
.
Foreign Currency
We remeasure foreign currency transactions into the relevant functional currency and record the foreign currency transaction gains or losses as a component of other, net in our consolidated statements of operations. We translate the financial statements of our non-U.S. dollar functional currency foreign subsidiaries into U.S. dollars in consolidation and record the translation gains or losses as a component of other comprehensive income (loss). Translation gains or losses of foreign subsidiaries related to divested businesses are reclassified into earnings as a component of other, net in our consolidated statements of operations once the liquidation of the respective foreign subsidiaries is substantially complete.
Adoption of New Accounting Standards
In August 2018, the Financial Accounting Standards Board ("FASB") issued updated guidance that eliminates, modifies and adds certain disclosure requirements related to defined benefit pension and other post-retirement plans. The updated standard is effective for public companies for fiscal years, and interim periods within those fiscal years, ending after December 15, 2020, with early adoption permitted, and is required to be applied retrospectively. We adopted this standard in the fourth quarter of 2018, which did not have a material impact on our consolidated financial statements.
In August 2018, the FASB issued updated guidance that eliminates, modifies and adds certain disclosure requirements related to fair value measurements. The updated standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for the eliminated or modified disclosures, while delaying the adoption of the additional disclosures until their effective date. We adopted this standard in the fourth quarter of 2018, which did not have a material impact on our consolidated financial statements.
In June 2018, the FASB issued updated guidance for share-based payment awards issued to non-employees. The updated standard aligns the accounting for share-based payment awards for non-employees with employees, except for guidance related to the attribution of compensation costs for non-employees. The Accounting Standards Update ("ASU") is effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods for public business entities, with early adoption permitted. We early adopted this standard in the second quarter of 2018, which did not have a material impact on our consolidated financial statements.
In February 2018, the FASB issued updated guidance to give entities the option to reclassify to retained earnings the tax effects of items within accumulated other comprehensive income ("stranded tax effects") resulting from a reduction of the federal corporate income tax rate from 35% to 21% under the Tax Cuts and Jobs Act (“TCJA”) signed into law in December 2017. The ASU is effective for annual periods beginning after December 15, 2018, with early adoption permitted. See Note
7. Income Taxes
for additional information on certain impacts related to the enactment of the TCJA. We early adopted the updated standard in the second quarter of 2018 and elected to reclassify the stranded income tax effects related to the enactment of the TCJA to retained earnings. The adoption of this ASU resulted in a decrease in our retained deficit of
$22 million
with a corresponding increase to accumulated other comprehensive income primarily as a result of reclassifying stranded tax effects for our retirement-related benefit plans. The adoption of this updated standard did not have a material impact on our consolidated results of operations and statement of cash flows.
In August 2017, the FASB issued updated guidance to expand and simplify the application of hedge accounting. The updated standard eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness. The ASU is effective for annual periods beginning after December 15, 2018, with early adoption permitted. We early adopted this standard in the second quarter of 2018, which did not have a material impact on our consolidated financial statements.
In March 2017, the FASB issued updated guidance improving the presentation requirements related to reporting the service cost component of net benefit costs to require that the service cost component be reported in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period, disaggregating the component from other net benefit costs. Net benefit cost is composed of several items, which reflect different aspects of an employer's financial arrangements as well as the cost of benefits earned by employees. The updated guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those annual periods for public business entities. We adopted this standard in the first quarter of 2018, which did not have a material impact on our consolidated financial statements.
In February 2017, the FASB issued updated guidance on gains and losses from the derecognition of non-financial assets. The updated guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those annual periods for public business entities. We adopted this standard in the first quarter of 2018, which did not have a material impact on our consolidated financial statements.
In January 2016, the FASB issued updated guidance on accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure for financial instruments. Under this updated standard, entities must measure equity investments at fair value and recognize changes in fair value in net income. For equity investments without readily determinable fair values, entities have the option to either measure these investments at fair value or at cost adjusted for changes in observable prices less impairment. The updated guidance does not apply to equity method investments or investments in consolidated subsidiaries. This new standard is effective for public companies for annual periods, including interim periods, beginning after December 15, 2017. We adopted this standard in the first quarter of 2018, which did not have a material impact on our consolidated financial statements.
Recent Accounting Pronouncements
In August 2018, the FASB issued updated guidance on customer's accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. Under this updated standard, when the arrangement includes a license to software developed for internal use, implementation costs are capitalized and amortized on a straight-line basis over the related contract terms, and a liability is also recognized to the extent the payments attributable to the software license are made over time. When the cloud computing arrangement does not include a software license, implementation costs are to be expensed as incurred. The updated standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. We do not expect the adoption of this updated standard will have a material impact on our consolidated financial statements.
In June 2016, the FASB issued updated guidance for the measurement of credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. Under this updated standard, the current "incurred loss" approach is replaced with an "expected loss" model for instruments measured at amortized cost. For available-for-sale debt securities, allowances for losses will now be required rather than reducing the instruments carrying value. The updated standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the impact of this standard on our consolidated financial statements.
In February 2016, the FASB issued updated guidance requiring organizations that lease assets—referred to as "lessees"—to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases, when the lease has a term of more than 12 months. The updated standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We plan to adopt the new standard using the cumulative-effect adjustment transition method on its effective date of January 1, 2019, and we expect to elect the package of practical expedients and the hindsight practical expedient upon adoption. We are in the process of implementing changes to our processes and systems. We preliminarily estimate our other non-current assets and total liabilities may be increased on our consolidated balance sheets by approximately
$70 million
to
$80 million
, with an immaterial impact to retained earnings, as a result of recognizing the right of use assets and corresponding lease liabilities in connection with the adoption of the updated standard. Our assessment is ongoing and subject to finalization such that the actual impact of the adoption may differ materially from this estimated range. We do not expect that the adoption of this updated standard will have a material impact on our consolidated results of operations and cash flows.
2. Revenue from Contracts with Customers
In the first quarter of 2018, we adopted the comprehensive update to revenue recognition guidance ASC 606, which replaced ASC 605, using the modified retrospective approach, applied to contracts that were not completed as of the adoption date. Under ASC 606, revenue is recognized when a company transfers the promised goods or services to customers in an amount that reflects the consideration that is expected to be received for those goods and services. The key areas of impact on our financials include:
• Revenue recognition for our Travel Network and Hospitality Solutions businesses did not change significantly. The definition of a performance obligation for Travel Network under the new guidance impacts the calculation for our booking fee cancellation reserve, which resulted in a beginning balance sheet adjustment.
• Our Airline Solutions business is primarily impacted by ASC 606 due to the following:
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–
|
Under ASC 605, we recognized revenue related to license fee and maintenance agreements ratably over the life of the contract. Under ASC 606, revenue for license fees is recognized upon delivery of the license and ongoing maintenance services are to be recognized ratably over the life of the contract. For existing open agreements, this change resulted in a beginning balance sheet adjustment and reduced revenue in subsequent years from these agreements.
|
|
|
–
|
Allocation of contract revenues among various products and solutions, and the timing of the recognition of those revenues, are impacted by agreements with tiered pricing or variable rate structures that do not correspond with the goods or services delivered to the customer. For existing open agreements, this change resulted in a beginning balance sheet adjustment and reduced revenue in subsequent years from these agreements.
|
• Capitalization of incremental contract acquisition costs (such as sales commissions), and recognition of these costs over the customer benefit period resulted in the recognition of an asset on our balance sheet and impacted our Airline Solutions and Hospitality Solutions businesses.
Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts have not been adjusted and continue to be reported in accordance with ASC 605. The impacts described above resulted in a net reduction to our opening retained deficit as of January 1, 2018 of approximately
$102 million
(net of tax,
$78 million
) with a corresponding increase primarily in current and long-term unbilled receivables, contract assets, other assets and other accrued liabilities.
The following tables set forth the impact of the adoption of the revenue recognition standard to our reported results on our consolidated statement of operations and consolidated balance sheet, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
As reported
ASC 606
|
Adjustments
|
As adjusted
ASC 605
|
Revenue
|
$
|
3,866,956
|
|
$
|
22,637
|
|
$
|
3,889,593
|
|
Cost of revenue
|
2,791,414
|
|
6,728
|
|
2,798,142
|
|
Selling, general and administrative
|
513,526
|
|
(222
|
)
|
513,304
|
|
Operating income
|
562,016
|
|
16,131
|
|
578,147
|
|
Income from continuing operations before income taxes
|
398,413
|
|
16,131
|
|
414,544
|
|
Provision for income taxes
|
57,492
|
|
3,524
|
|
61,016
|
|
Income from continuing operations
|
340,921
|
|
12,607
|
|
353,528
|
|
Net income
|
342,660
|
|
12,607
|
|
355,267
|
|
Net income attributable to common stockholders
|
337,531
|
|
12,607
|
|
350,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
As reported
ASC 606
|
Adjustments
|
As adjusted
ASC 605
|
Accounts receivable, net
|
$
|
508,122
|
|
$
|
(31,141
|
)
|
$
|
476,981
|
|
Prepaid expenses and other current assets
|
170,243
|
|
(22,379
|
)
|
147,864
|
|
Total current assets
|
1,187,630
|
|
(53,520
|
)
|
1,134,110
|
|
Other assets, net
|
610,671
|
|
5,478
|
|
616,149
|
|
Total assets
|
5,806,381
|
|
(48,042
|
)
|
5,758,339
|
|
Accrued subscriber incentives
|
301,530
|
|
4,130
|
|
305,660
|
|
Deferred revenues
|
80,902
|
|
53,752
|
|
134,654
|
|
Other accrued liabilities
|
185,178
|
|
(20,057
|
)
|
165,121
|
|
Total current liabilities
|
1,018,395
|
|
37,825
|
|
1,056,220
|
|
Deferred income taxes
|
135,753
|
|
(19,575
|
)
|
116,178
|
|
Other noncurrent liabilities
|
340,495
|
|
(254
|
)
|
340,241
|
|
Retained deficit
|
(768,566
|
)
|
(66,038
|
)
|
(834,604
|
)
|
Total stockholders' equity
|
974,271
|
|
(66,038
|
)
|
908,233
|
|
Total liabilities and stockholders' equity
|
5,806,381
|
|
(48,042
|
)
|
5,758,339
|
|
Contract Balances
Revenue recognition for a significant portion of our revenue coincides with normal billing terms, including Travel Network's transactional revenues, and Airline Solutions' and Hospitality Solutions' Software-as-a-Service ("SaaS") and hosted revenues. Timing differences among revenue recognition, unconditional rights to bill, and receipt of contract consideration may result in a net contract asset or contract liability. Contract liabilities are included within deferred revenues and other noncurrent liabilities on the consolidated balance sheet. Contract liabilities totaled
$166 million
and
$158 million
as of
December 31, 2018
and January 1, 2018, respectively. During the
year ended December 31, 2018
, we recognized revenue of approximately
$40 million
from contract liabilities that existed as of January 1, 2018.
Contract assets are included within prepaid expenses and other current assets and other assets, net on the consolidated balance sheet. The following table presents the changes in our contract assets balance (in thousands):
|
|
|
|
|
Contract assets as of January 1, 2018
|
$
|
75,624
|
|
Additions
|
41,704
|
|
Deductions
|
(38,029
|
)
|
Other
|
(31
|
)
|
Contract assets as of December 31, 2018
|
$
|
79,268
|
|
Our trade accounts receivable, net recorded in accounts receivable, net on the consolidated balance sheet as of
December 31, 2018
and January 1, 2018 was
$501 million
and
$506 million
, respectively. Our long-term trade unbilled receivables, net recorded in other assets, net on the consolidated balance sheet as of
December 31, 2018
and January 1, 2018 was
$50 million
and
$54 million
, respectively. These balances relate to license fees billed ratably over the contractual period and recognized when the customer gains control of the software. We evaluate collectability of our accounts receivable based on a combination of factors and record reserves as reflected in Note
1. Summary of Business and Significant Accounting Policies
.
Revenue
The following table presents our revenues disaggregated by business (in thousands):
|
|
|
|
|
|
Year Ended December 31, 2018
|
Air
|
$
|
2,284,419
|
|
Lodging, Ground and Sea
|
350,152
|
|
Other
|
171,623
|
|
Total Travel Network
|
2,806,194
|
|
SabreSonic Passenger Reservation System
|
501,085
|
|
Commercial and Operations Solutions
(1)
|
312,751
|
|
Other
|
8,911
|
|
Total Airline Solutions
|
822,747
|
|
SynXis Software and Services
|
240,583
|
|
Other
|
32,496
|
|
Total Hospitality Solutions
|
273,079
|
|
Eliminations
|
(35,064
|
)
|
Total Sabre Revenue
|
$
|
3,866,956
|
|
|
|
(1) Includes
$27 million
of license fee revenue recognized upon delivery to the customer for the
year ended December 31, 2018
.
We may occasionally recognize revenue in the current period for performance obligations partially or fully satisfied in the previous periods resulting from changes in estimates for the transaction price, including any changes to our assessment of whether an estimate of variable consideration is constrained. For the
year ended December 31, 2018
, the impact on revenue recognized in the current period, from performance obligations partially or fully satisfied in the previous period, is immaterial.
We recognize revenue under long-term contracts that primarily includes variable consideration based on transactions processed. A majority of our consolidated revenue is recognized as a stand-ready performance obligation with the amount recognized based on the invoiced amounts for services performed, known as right to invoice revenue recognition. Certain of our contracts, primarily in the Airlines Solutions business, contain minimum transaction volumes, which in many instances are not considered substantive as the customer is expected to exceed the minimum in the contract. Unearned performance obligations primarily consist of deferred revenue for fixed implementation fees and future product implementations, which are included in deferred revenue and other noncurrent liabilities in our consolidated balance sheet. We have not disclosed the performance obligation related to contracts containing minimum transaction volume, as it represents a subset of our business, and therefore would not be meaningful in understanding the total future revenues expected to be earned from our long-term contracts. See
1. Summary of Business and Significant Accounting Policies
regarding revenue recognition of our various revenue streams for more information.
Contract Acquisition Costs and Capitalized Implementation Costs
We incur contract costs in the form of acquisition costs and implementation costs. Contract acquisition costs are related to new contracts with our customers in the form of sales commissions based on the estimated contract value. We incur contract implementation costs to implement new customer contracts under our SaaS revenue model
.
We periodically assess contract costs for recoverability, and our assessment resulted in impairments of approximately
$4 million
, recorded in cost of revenue, for the
year ended December 31, 2018
. See Note
1. Summary of Business and Significant Accounting Policies
for an overview of our policy for capitalization of acquisition and implementation costs. The following table presents the changes in contract acquisition costs and capitalized implementation costs (in thousands):
|
|
|
|
|
|
December 31, 2018
|
Contract acquisition costs:
|
|
Beginning balance (1/1/2018)
|
$
|
19,353
|
|
Additions
|
7,924
|
|
Amortization
|
(6,404
|
)
|
Other
|
425
|
|
Ending balance
|
$
|
21,298
|
|
|
|
Capitalized implementation costs:
|
|
Beginning balance (1/1/2018)
|
$
|
194,501
|
|
Additions
|
39,168
|
|
Amortization
|
(37,904
|
)
|
Impairment
|
(4,013
|
)
|
Other
|
(2,304
|
)
|
Ending balance
|
$
|
189,448
|
|
Practical Expedients and Exemptions
There are several practical expedients and exemptions allowed under ASC 606 that impact timing of revenue recognition and our disclosures. Below is a list of practical expedients we applied in the adoption and application of ASC 606:
Application
|
|
•
|
When we have a right to receive consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date, we recognize revenue in the amount to which we have a right to invoice.
|
|
|
•
|
We apply the allocation objective expedient where applicable, which precludes the requirement to allocate revenue across multiple performance obligations based on total transaction price.
|
|
|
•
|
We do not evaluate a contract for a significant financing component if payment is expected within one year or less from the transfer of the promised items to the customer.
|
|
|
•
|
We generally expense sales commissions when incurred when the amortization period would have been one year or less. These costs are recorded within selling, general and administrative expenses. We also used the practical expedient to calculate contract acquisition costs based on a portfolio of contracts with similar characteristics instead of a contract by contract analysis.
|
Modified Retrospective Transition Adjustments
|
|
•
|
For contract modifications, we reflected the aggregate effect of all modifications that occurred prior to the adoption date when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price to satisfied and unsatisfied performance obligations for the modified contract at transition.
|
3. Acquisitions
Farelogix
We announced on November 14, 2018 that we have entered into an agreement to acquire Farelogix, a recognized innovator in the travel industry with offer management and NDC order delivery technology used by many of the world’s leading airlines. At closing, Sabre will purchase Farelogix for $360 million, funded by cash on hand and Revolver borrowing. The acquisition is subject to customary closing conditions and regulatory approvals and is expected to close in 2019. Regulatory reviews are ongoing. There can be no assurance that the acquisition will occur on these terms or at all.
Airpas Aviation
In April 2016, we completed the acquisition of Airpas Aviation, a software provider and consultancy company which offers route profitability and cost management software solutions. We acquired all of the outstanding stock and ownership interest of Airpas Aviation for net cash consideration of
$9 million
. Assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date. The allocation of purchase price includes
$12 million
of assets acquired, primarily consisting of
$5 million
of goodwill, not deductible for tax purposes, and
$5 million
of intangible assets. The intangible assets consist mainly of
$4 million
of acquired customer relationships with a useful life of
10 years
and
$1 million
of purchased technology with a useful life of
5 years
. Airpas Aviation is integrated and managed as part of our Airline Solutions segment. The acquisition of Airpas Aviation did not have a material impact to our consolidated financial statements, and therefore pro forma information is not presented.
Trust Group
In January 2016, we completed the acquisition of the Trust Group, a central reservations, revenue management and hotel
marketing provider, expanding our presence in Europe, the Middle East, and Africa ("EMEA") and Asia Pacific ("APAC"). The net cash consideration for the Trust Group was
$156 million
. The acquisition was funded using proceeds from our
5.25%
senior secured notes due in 2023 and cash on hand. The Trust Group has been integrated and is managed as part of our Hospitality Solutions segment.
Purchase Price Allocation
A summary of the acquisition price and estimated fair values of assets acquired and liabilities assumed as of the date of acquisition is as follows (in thousands):
|
|
|
|
|
Cash and cash equivalents
|
$
|
4,209
|
|
Accounts receivable
|
10,564
|
|
Other current assets
|
917
|
|
Goodwill
|
98,930
|
|
Intangible assets:
|
|
Customer relationships
|
52,292
|
|
Purchased technology
|
23,362
|
|
Trademarks and brand names
|
2,183
|
|
Property and equipment, net
|
1,556
|
|
Current liabilities
|
(11,091
|
)
|
Deferred income taxes
|
(22,548
|
)
|
Total acquisition price
|
$
|
160,374
|
|
The goodwill recognized reflects expected synergies from combined operations and also the acquired assembled workforce of the Trust Group in EMEA and APAC. The goodwill recognized is assigned to our Hospitality Solutions segment and is not deductible for tax purposes. The weighted-average useful lives of the intangible assets acquired are
13 years
for customer relationships,
2 years
for purchased technology and
2 years
for trademarks and brand names.
The acquisition of the Trust Group did not have a material impact to our consolidated financial statements, and therefore pro forma information is not presented.
4. Impairment and Related Charges
Capitalized implementation costs and deferred customer advances and discounts are reviewed for impairment if events and circumstances indicate that their carrying amounts may not be recoverable. See Note
1. Summary of Business and Significant Accounting Policies
for more information. Given the substantial amount of uncertainty of reaching an agreement regarding the implementation of services pursuant to the contract with an Airline Solutions' customer, we evaluated the recoverability of net capitalized contract costs related to the customer and recorded a charge of
$81 million
during the year ended December 31, 2017. This charge was estimated based on a review of all balances with the customer including capitalized implementation costs, deferred customer advances and discounts, deferred revenue, contract liabilities, and other deferred charges. We will continue to monitor our position through the insolvency proceedings; however, there is no further exposure to our consolidated balance sheet as of
December 31, 2018
. Given the uncertainty associated with the ultimate resolution of this dispute, there could be further impacts to our consolidated statement of operations. This impairment charge was primarily non-cash and was recorded to Impairment and related charges in our consolidated statement of operations for the year ended
December 31, 2017
. See Note
15. Commitments and Contingencies
—Other for additional information.
5. Goodwill and Intangible Assets
Changes in the carrying amount of goodwill during the years ended
December 31, 2018
and
2017
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Travel Network
|
|
Airline Solutions
|
|
Hospitality
Solutions
|
|
Total
Goodwill
|
Balance as of December 31, 2016
|
$
|
2,104,542
|
|
|
$
|
290,003
|
|
|
$
|
153,902
|
|
|
$
|
2,548,447
|
|
Acquired
|
439
|
|
|
—
|
|
|
—
|
|
|
439
|
|
Adjustments
(1)
|
(159
|
)
|
|
982
|
|
|
5,278
|
|
|
6,101
|
|
Balance as of December 31, 2017
|
2,104,822
|
|
|
290,985
|
|
|
159,180
|
|
|
2,554,987
|
|
Acquired
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Adjustments
(1)
|
(33
|
)
|
|
378
|
|
|
(2,963
|
)
|
|
(2,618
|
)
|
Balance as of December 31, 2018
|
$
|
2,104,789
|
|
|
$
|
291,363
|
|
|
$
|
156,217
|
|
|
$
|
2,552,369
|
|
________________________
|
|
(1)
|
Includes net foreign currency effects during the year.
|
The following table presents our intangible assets as of
December 31, 2018
and
2017
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
December 31, 2017
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
Acquired customer relationships
|
$
|
1,033,555
|
|
|
$
|
(709,824
|
)
|
|
$
|
323,731
|
|
|
$
|
1,038,106
|
|
|
$
|
(687,072
|
)
|
|
$
|
351,034
|
|
Trademarks and brand names
|
332,239
|
|
|
(137,009
|
)
|
|
195,230
|
|
|
332,238
|
|
|
(126,312
|
)
|
|
205,926
|
|
Reacquired rights
|
113,500
|
|
|
(56,910
|
)
|
|
56,590
|
|
|
113,500
|
|
|
(40,695
|
)
|
|
72,805
|
|
Purchased technology
|
426,488
|
|
|
(400,750
|
)
|
|
25,738
|
|
|
427,823
|
|
|
(390,139
|
)
|
|
37,684
|
|
Acquired contracts, supplier and distributor agreements
|
37,600
|
|
|
(25,867
|
)
|
|
11,733
|
|
|
37,600
|
|
|
(22,410
|
)
|
|
15,190
|
|
Non-compete agreements
|
14,686
|
|
|
(14,460
|
)
|
|
226
|
|
|
15,025
|
|
|
(14,459
|
)
|
|
566
|
|
Total intangible assets
|
$
|
1,958,068
|
|
|
$
|
(1,344,820
|
)
|
|
$
|
613,248
|
|
|
$
|
1,964,292
|
|
|
$
|
(1,281,087
|
)
|
|
$
|
683,205
|
|
Amortization expense relating to intangible assets subject to amortization totaled $
68 million
,
$96 million
and
$143 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively. Estimated amortization expense related to intangible assets subject to amortization for each of the five succeeding years and beyond is as follows (in thousands):
|
|
|
|
|
2019
|
$
|
63,866
|
|
2020
|
62,256
|
|
2021
|
60,725
|
|
2022
|
47,144
|
|
2023
|
33,438
|
|
2024 and thereafter
|
345,819
|
|
Total
|
$
|
613,248
|
|
6. Balance Sheet Components
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Prepaid Expenses
|
$
|
80,049
|
|
|
$
|
69,650
|
|
Value added tax receivable, net
|
57,486
|
|
|
35,556
|
|
Other
|
32,708
|
|
|
3,547
|
|
Prepaid expenses and other current assets
|
$
|
170,243
|
|
|
$
|
108,753
|
|
Property and Equipment, Net
Property and equipment, net consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Buildings and leasehold improvements
|
$
|
156,357
|
|
|
$
|
151,843
|
|
Furniture, fixtures and equipment
|
38,049
|
|
|
38,155
|
|
Computer equipment
|
349,454
|
|
|
323,818
|
|
Software developed for internal use
|
1,771,306
|
|
|
1,521,901
|
|
Property and equipment
|
2,315,166
|
|
|
2,035,717
|
|
Accumulated depreciation and amortization
|
(1,524,794
|
)
|
|
(1,236,523
|
)
|
Property and equipment, net
|
$
|
790,372
|
|
|
$
|
799,194
|
|
Other Assets, Net
Other assets, net consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Capitalized implementation costs, net
|
$
|
189,447
|
|
|
$
|
208,415
|
|
Deferred upfront incentive consideration
|
162,893
|
|
|
151,693
|
|
Long-term contract assets
(1)
|
60,075
|
|
|
92,373
|
|
Long-term trade unbilled receivables
(1)
|
50,467
|
|
|
—
|
|
Other
|
147,789
|
|
|
139,461
|
|
Other assets, net
|
$
|
610,671
|
|
|
$
|
591,942
|
|
________________________________
(1) Refer to Note
2. Revenue from Contracts with Customers
that sets forth the impact of the adoption of ASC 606 on Other Assets, net.
Other Noncurrent Liabilities
Other noncurrent liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
|
|
|
|
Pension and other postretirement benefits
|
$
|
118,919
|
|
|
$
|
115,114
|
|
Deferred revenue
|
75,685
|
|
|
99,044
|
|
Tax receivable agreement
|
72,939
|
|
|
170,067
|
|
Other
|
72,952
|
|
|
95,960
|
|
Other noncurrent liabilities
|
$
|
340,495
|
|
|
$
|
480,185
|
|
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Defined benefit pension and other postretirement benefit plans
|
$
|
(139,430
|
)
|
|
$
|
(102,623
|
)
|
Unrealized foreign currency translation gain
|
7,201
|
|
|
11,488
|
|
Unrealized (loss) gain on foreign currency forward contracts, interest rate swaps and available-for-sale securities
|
(495
|
)
|
|
2,651
|
|
Total accumulated other comprehensive loss, net of tax
|
$
|
(132,724
|
)
|
|
$
|
(88,484
|
)
|
The amortization of actuarial losses and periodic service credits associated with our retirement-related benefit plans is included in Other, net. See Note
9. Derivatives
, for information on the income statement line items affected as the result of reclassification adjustments associated with derivatives.
7. Income Taxes
On December 22, 2017, the TCJA was signed into law. The TCJA contains significant changes to the U.S. corporate income tax system, including a reduction of the federal corporate income tax rate from
35%
to
21%
, a limitation of the tax deduction for interest expense to
30%
of adjusted taxable income (as defined in the TCJA), base erosion and anti-avoidance tax (“BEAT”), foreign-derived intangible income (“FDII”) and global intangible low-taxed income (“GILTI”), one-time taxation of offshore earnings at reduced rates in connection with the transition of U.S. international taxation from a worldwide tax system to a territorial tax system (“transition tax”), elimination of U.S. tax on foreign earnings (subject to certain important exceptions), and modifying or repealing many business deductions and credits.
We are required to recognize the effect of the tax law changes in the period of enactment, such as remeasuring our U.S. deferred tax assets and liabilities. In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the 2017 Tax Cuts and Jobs Act (“SAB 118”), which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. As of December 31, 2018, we have completed our accounting for the TCJA and have recorded the following adjustments:
Deferred tax assets and liabilities: At December 31, 2017, we remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%, the impact of which was not material to the provision for income taxes from continuing operations for the year then ended. Upon further analysis of certain aspects of the TCJA and refinement of our calculations during the year ended December 31, 2018, including the impact of the election to utilize our net operating losses ("NOLs") against the one-time transition tax income, we reduced our provisional amount by
$41 million
, which is reflected in our provision for income taxes from continuing operations for the year then ended. This adjustment relates primarily to the remeasurement of our NOLs to the appropriate tax rate applicable in the period of expected utilization.
Foreign tax effects: At December 31, 2017, we recorded a provisional amount for our one-time transition tax liability for the previously untaxed post-1986 earnings and profits of our foreign subsidiaries, resulting in an increase in the provision for income taxes of $
48
million. Upon further analyses of the TCJA and subsequently published administrative guidance, we finalized our calculations and, in 2018, increased our provisional amount by
$14 million
, which is reflected in the provision for income taxes from continuing operations. In addition, because of our decision during 2018 to utilize NOLs against the one-time transition tax income, we reversed the current and noncurrent liability accrued for transition tax at December 31, 2017 and recorded a corresponding reduction to the NOL deferred tax asset.
Tax Receivable Agreement (“TRA”): The TRA provides for future payments to Pre-IPO Existing Stockholders (as defined below) for cash savings for U.S. federal income tax realized as a result of the utilization of Pre-IPO Tax Assets (as defined below). These cash savings would be realized at the enacted statutory tax rate effective in the year of utilization. Primarily as a result of the reduction in the U.S. corporate income tax rate, we recorded a
$58 million
provisional reduction to the liability at December 31, 2017. In 2018, we finalized the 2017 U.S. federal income tax return and utilized additional Pre-IPO Tax Assets in the return, primarily as a result of electing to utilize our NOLs against our one-time transition tax income. As a result of the change in estimated NOL utilization at the higher corporate income tax rate in 2017 we recorded an increase to our liability of
$5 million
related to the TRA, which is reflected in our income from continuing operations before taxes.
The components of pretax income from continuing operations, generally based on the jurisdiction of the legal entity, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Components of pre-tax income:
|
|
|
|
|
|
|
|
|
Domestic
|
$
|
190,291
|
|
|
$
|
199,685
|
|
|
$
|
206,182
|
|
Foreign
|
208,122
|
|
|
177,928
|
|
|
121,853
|
|
|
$
|
398,413
|
|
|
$
|
377,613
|
|
|
$
|
328,035
|
|
The provision for income taxes relating to continuing operations consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Current portion:
|
|
|
|
|
|
|
|
|
Federal
|
$
|
(49,518
|
)
|
|
$
|
50,829
|
|
|
$
|
8,357
|
|
State and Local
|
4,168
|
|
|
2,388
|
|
|
1,346
|
|
Non U.S.
|
59,743
|
|
|
26,060
|
|
|
28,488
|
|
Total current
|
14,393
|
|
|
79,277
|
|
|
38,191
|
|
Deferred portion:
|
|
|
|
|
|
|
|
|
Federal
|
55,502
|
|
|
47,372
|
|
|
60,372
|
|
State and Local
|
(4,812
|
)
|
|
(6,178
|
)
|
|
(4,352
|
)
|
Non U.S.
|
(7,591
|
)
|
|
7,566
|
|
|
(7,566
|
)
|
Total deferred
|
43,099
|
|
|
48,760
|
|
|
48,454
|
|
Total provision for income taxes
|
$
|
57,492
|
|
|
$
|
128,037
|
|
|
$
|
86,645
|
|
The provision for income taxes relating to continuing operations differs from amounts computed at the statutory federal income tax rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Income tax provision at statutory federal income tax rate
|
$
|
83,667
|
|
|
$
|
132,165
|
|
|
$
|
114,812
|
|
State income taxes, net of federal benefit
|
(42
|
)
|
|
(1,727
|
)
|
|
(1,964
|
)
|
Impact of non U.S. taxing jurisdictions, net
|
5,591
|
|
|
(13,492
|
)
|
|
11,482
|
|
Impact of U.S. TCJA
(1)
|
(26,730
|
)
|
|
46,563
|
|
|
—
|
|
Employee stock based compensation
|
2,260
|
|
|
(4,977
|
)
|
|
(34,789
|
)
|
Research tax credit
|
(9,818
|
)
|
|
(8,777
|
)
|
|
(9,817
|
)
|
Tax receivable agreement (TRA)
(2)
|
1,019
|
|
|
(20,861
|
)
|
|
—
|
|
Valuation allowance
|
—
|
|
|
—
|
|
|
8
|
|
Other, net
|
1,545
|
|
|
(857
|
)
|
|
6,913
|
|
Total provision for income taxes
|
$
|
57,492
|
|
|
$
|
128,037
|
|
|
$
|
86,645
|
|
|
|
(1)
|
In 2018, amount includes SAB 118 adjustments for deferred taxes and foreign tax effects. In 2017, amount includes
$48 million
of transition tax expense, and the remainder is the net benefit on cumulative deferred taxes.
|
|
|
(2)
|
Amount includes adjustments to the TRA, which are not taxable.
|
The components of our deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2018
|
|
2017
|
Deferred tax assets:
|
|
|
|
|
|
Accrued expenses
|
$
|
8,638
|
|
|
$
|
13,716
|
|
Employee benefits other than pension
|
34,147
|
|
|
22,829
|
|
Deferred revenue
|
22,351
|
|
|
51,151
|
|
Pension obligations
|
26,821
|
|
|
24,989
|
|
Tax loss carryforwards
|
70,340
|
|
|
156,327
|
|
Non-U.S. operations
|
—
|
|
|
14,565
|
|
Incentive consideration
|
9,456
|
|
|
5,381
|
|
Tax credit carryforwards
|
31,467
|
|
|
58,848
|
|
Suspended loss
|
14,474
|
|
|
14,478
|
|
Other
|
8,008
|
|
|
243
|
|
Total deferred tax assets
|
225,702
|
|
|
362,527
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Depreciation and amortization
|
(13,298
|
)
|
|
(21,317
|
)
|
Software developed for internal use
|
(103,631
|
)
|
|
(180,108
|
)
|
Intangible assets
|
(122,921
|
)
|
|
(134,484
|
)
|
Unrealized gains and losses
|
(21,840
|
)
|
|
(29,669
|
)
|
Non U.S. operations
|
(9,355
|
)
|
|
—
|
|
Investment in partnership
|
(6,794
|
)
|
|
(5,932
|
)
|
Total deferred tax liabilities
|
(277,839
|
)
|
|
(371,510
|
)
|
Valuation allowance
|
(59,294
|
)
|
|
(59,001
|
)
|
Net deferred tax (liability)
|
$
|
(111,431
|
)
|
|
$
|
(67,984
|
)
|
In the first quarter of 2018, we adopted ASC 606, which replaced ASC 605, using the modified retrospective approach. As a result of the adoption of ASC 606, we recorded a cumulative effect adjustment as of January 1, 2018 to decrease our opening retained deficit as of January 1, 2018 by approximately
$102 million
with a corresponding increase to deferred tax liabilities of
$24 million
to recognize the increase to income taxes payable in the future related to revenue recognition.
As a result of the enactment of the TCJA, we recorded a one-time transition tax on the undistributed earnings of our foreign subsidiaries. We do not consider these undistributed earnings to be indefinitely reinvested as of December 31, 2018, with certain limited exceptions. We consider the undistributed capital investments in our foreign subsidiaries to be indefinitely reinvested as of December 31, 2018, and have not provided deferred taxes on any outside basis differences. Determination of the amount of unrecognized deferred tax liability, if any, related to indefinitely reinvested capital investments is not practicable.
As of
December 31, 2018
, we have U.S. federal net operating loss carryforwards ("NOLs") of approximately
$8 million
, which will expire between
2022
and
2035
. Additionally, we have research tax credit carryforwards of approximately
$6 million
, which will expire between
2037
and
2038
and
$10 million
Alternative Minimum Tax (“AMT”) credit carry forward that does not expire. As a result of ownership changes during 2007 and 2015 (as defined in Section 382 of the Code, which imposes an annual limit on the ability of a corporation to use certain tax attributes), all of the U.S. federal NOLs and credit carryforwards are subject to an annual limitation on their ability to be utilized. However, we expect that Section 382 will not limit our ability to fully realize the tax benefits. We have state NOLs of
$9 million
which will expire between 2020 and 2037 and state research tax credit carryforwards of
$17 million
which will expire between 2023 and 2038. We have
$252 million
of NOL carryforwards related to certain non U.S. taxing jurisdictions that are primarily from countries with indefinite carryforward periods.
We regularly review our deferred tax assets for realizability and a valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon future taxable income during the periods in which those temporary differences become deductible. In assessing the need for a valuation allowance for our deferred tax assets, we considered all available positive and negative evidence, including our ability to carry back NOLs to prior periods, the reversal of deferred tax liabilities, tax planning strategies and projected future taxable income. We maintained a state NOL valuation allowance of
$4 million
million as of December 31, 2018 and 2017. For non-U.S. deferred tax assets of our lastminute.com and other subsidiaries, we maintained a valuation allowance of
$55 million
as of
December 31, 2018
and
2017
. We reassess these assumptions regularly which could cause an increase or decrease to the valuation allowance. This assessment could result in an increase or decrease in the effective tax rate which could materially impact our results of operations.
It is our policy to recognize penalties and interest accrued related to income taxes as a component of the provision for income taxes from continuing operations. During the years ended
December 31, 2018
,
2017
and
2016
, we recognized expense of
$1 million
,
$1 million
and
$5 million
, respectively. As of
December 31, 2018
and
2017
, we had cumulative accrued interest and penalties of approximately
$23 million
and
$22 million
, respectively.
A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Balance at beginning of year
|
$
|
74,388
|
|
|
$
|
49,331
|
|
|
$
|
68,746
|
|
Additions for tax positions taken in the current year
|
4,450
|
|
|
5,279
|
|
|
538
|
|
Additions for tax positions of prior years
|
1,649
|
|
|
21,669
|
|
|
2,096
|
|
Additions for tax positions from acquisitions
|
—
|
|
|
—
|
|
|
—
|
|
Reductions for tax positions of prior years
|
(5,831
|
)
|
|
—
|
|
|
(17,706
|
)
|
Reductions for tax positions of expired statute of limitations
|
(3,143
|
)
|
|
(1,891
|
)
|
|
(3,743
|
)
|
Settlements
|
(2,149
|
)
|
|
—
|
|
|
(600
|
)
|
Balance at end of year
|
$
|
69,364
|
|
|
$
|
74,388
|
|
|
$
|
49,331
|
|
We present unrecognized tax benefits as a reduction to deferred tax assets for NOLs, similar tax loss or a tax credit carryforward that is available to settle additional income taxes that would result from the disallowance of a tax position, presuming disallowance at the reporting date. The amount of unrecognized tax benefits that were offset against deferred tax assets was
$55 million
,
$53 million
and
$32 million
as of
December 31, 2018
,
2017
, and
2016
respectively.
As of
December 31, 2018
,
2017
, and
2016
, the amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was
$51 million
,
$70 million
and
$49 million
, respectively. We believe that it is reasonably possible that
$20 million
million in unrecognized tax benefits may be resolved in the next twelve months.
In the normal course of business, we are subject to examination by taxing authorities throughout the world. The following table summarizes, by major tax jurisdiction, our tax years that remain subject to examination by taxing authorities:
|
|
|
Tax Jurisdiction
|
Years Subject to Examination
|
United Kingdom
|
2013 - forward
|
Singapore
|
2014 - forward
|
Texas
|
2014 - forward
|
Uruguay
|
2013 - forward
|
U.S. Federal
|
2007 - forward
|
We currently have ongoing audits in the United States (2011-2013), India (2003-2016) and various other jurisdictions. We do not expect that the results of these examinations will have a material effect on our financial condition or results of operations. With few exceptions, we are no longer subject to income tax examinations by tax authorities for years prior to 2007.
Tax Receivable Agreement
Immediately prior to the closing of our initial public offering in April 2014, we entered into a TRA that provides the right to
receive future payments from us to stockholders and equity award holders that were our stockholders and equity award holders,
respectively, immediately prior to the closing of our initial public offering (collectively, the “Pre-IPO Existing Stockholders”). The future payments will equal
85%
of the amount of cash savings, if any, in U.S. federal income tax that we and our subsidiaries realize as a result of the utilization of certain tax assets attributable to periods prior to our initial public offering, including federal NOLs, capital losses and the ability to realize tax amortization of certain intangible assets (collectively, the “Pre-IPO Tax Assets”). Consequently, stockholders who are not Pre-IPO Existing Stockholders will only be entitled to the economic benefit of the Pre-IPO Tax Assets to the extent of our continuing
15%
interest in those assets. These payment obligations are our obligations and not obligations of any of our subsidiaries. The actual utilization of the Pre-IPO Tax Assets, as well as the timing of any payments under the TRA, will vary depending upon a number of factors, including the amount, character and timing of our and our subsidiaries’ taxable income in the future.
Based on current tax laws and assuming that we and our subsidiaries earn sufficient taxable income to realize the full tax benefits subject to the TRA, we estimate that payments under the TRA relating to the Pre-IPO Tax Assets total
$333 million
, excluding interest. This total includes a reduction recorded in the fourth quarter of 2017 with the enactment of the TCJA, which reduced the U.S. corporate income tax rate. We recorded a net reduction of
$55 million
in the TRA liability across the years ended December 31, 2018 and 2017. The TRA payments accrue interest in accordance with the terms of the TRA. The estimate of future payments considers the impact of Section 382 of the Code, which imposes an annual limit on the ability of a corporation that undergoes an ownership change to use its NOLs to reduce its liability. We do not anticipate any material limitations on our ability to utilize NOLs under Section 382 of the Code. We expect a majority of the future payments under the TRA to be made over the next
two years
.
No
payments occurred in years 2014 to 2016. We made payments of
$74 million
,
$60 million
and
$101 million
, which included accrued interest of approximately
$2 million
in January 2019 and approximately
$1 million
in each of January 2018 and 2017. We expect to make a payment of
$30 million
in April 2019, including approximately
$1 million
of accrued interest. As of December 31, 2018 and 2017 the current portion of our TRA liability totaled
$104 million
and
$60 million
, respectively, including approximately
$3 million
and
$1 million
of accrued interest, respectively. As of December 31, 2018 and 2017,
$73 million
and
$170 million
is included in other noncurrent liabilities in our consolidated balance sheets, respectively. Payments under the TRA are not conditioned upon the parties’ continuing ownership of the company. Changes in the utility of the Pre-IPO Tax Assets will impact the amount of the liability recorded in respect of the TRA. Changes in the utility of these Pre-IPO Tax Assets are recorded in income tax expense and any changes in the obligation under the TRA are recorded in other expense.
8. Debt
As of
December 31, 2018
and
2017
, our outstanding debt included in our consolidated balance sheets totaled $
3,406 million
and
$3,456 million
, respectively, which are net of debt issuance costs of
$18 million
and
$23 million
, respectively, and unamortized discounts of
$7 million
and
$9 million
, respectively. The following table sets forth the face values of our outstanding debt as of
December 31, 2018
and
2017
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Rate
|
|
Maturity
|
|
2018
|
|
2017
|
Senior secured credit facilities:
|
|
|
|
|
|
|
|
Term Loan A
|
L + 2.00%
|
|
July 2022
|
|
$
|
527,250
|
|
|
$
|
555,750
|
|
Term Loan B
(1)
|
L + 2.00%
|
|
February 2024
|
|
1,862,237
|
|
|
1,881,048
|
|
Revolver, $400 million
|
L + 2.00%
|
|
July 2022
|
|
—
|
|
|
—
|
|
5.375% senior secured notes due 2023
|
5.375%
|
|
April 2023
|
|
530,000
|
|
|
530,000
|
|
5.25% senior secured notes due 2023
|
5.25%
|
|
November 2023
|
|
500,000
|
|
|
500,000
|
|
Capital lease obligations
|
|
|
|
|
12,368
|
|
|
21,235
|
|
Face value of total debt outstanding
|
|
|
|
|
3,431,855
|
|
|
3,488,033
|
|
Less current portion of debt outstanding
|
|
|
|
|
(68,435
|
)
|
|
(57,138
|
)
|
Face value of long-term debt outstanding
|
|
|
|
|
$
|
3,363,420
|
|
|
$
|
3,430,895
|
|
______________________________
|
|
(1)
|
Pursuant to the March 2, 2018 refinancing, the interest rate on Term Loan B was reduced from L+
2.25%
to L+
2.00%
.
|
Senior Secured Credit Facilities
In February 2013, Sabre GLBL entered into the Amended and Restated Credit Agreement. The agreement replaced (i) the existing term loans with new classes of term loans of
$1,775 million
(the “2013 Term Loan B”) and
$425 million
(the “2013 Term Loan C”) and (ii) the existing revolving credit facility with a new revolving credit facility of
$352 million
(the “2013 Revolver”). In September 2013, Sabre GLBL entered into an agreement to amend the Amended and Restated Credit Agreement to add a new class of term loans in the amount of
$350 million
(the “2013 Incremental Term Loan Facility”).
In July 2016, Sabre GLBL entered into a series of amendments (the “Credit Agreement Amendments”) to our Amended and Restated Credit Agreement to provide for an incremental term loan under a new class with an aggregate principal amount of
$600 million
(the “2016 Term Loan A”) and to replace the 2013 Revolver with a new revolving credit facility totaling
$400 million
(the “2016 Revolver”). The proceeds of
$597 million
, net of
$3 million
discount, from the 2016 Term Loan A were used to repay
$350 million
of outstanding principal on our 2013 Term Loan B and 2013 Incremental Term Loan Facility, on a pro rata basis, repay the
$120 million
then-outstanding balance on the 2016 Revolver, and pay
$11 million
in associated financing fees. We recognized a
$4 million
loss on extinguishment of debt in connection with these transactions during the year ended December 31, 2016.
On February 22, 2017, Sabre GLBL entered into a Third Incremental Term Facility Amendment to our Amended and Restated Credit Agreement (the “2017 Term Facility Amendment”). The new agreement replaced the 2013 Term Loan B, 2013 Incremental Term Loan Facility and 2013 Term Loan C with a single class of term loan (the "2017 Term Loan B") with an aggregate principal amount of
$1,900 million
maturing on February 22, 2024. The proceeds of
$1,898 million
, net of
$2 million
discount on the 2017 Term Loan B, were used to pay off approximately
$1,761 million
of all existing classes of outstanding term loans (other than the 2016 Term Loan A), pay related accrued interest and pay
$12 million
in associated financing fees, which were recorded as debt modification costs in Other, net in the consolidated statement of operations during the three months ended March 31, 2017. The remaining proceeds of the 2017 Term Loan B were used to pay off approximately
$80 million
of Sabre’s outstanding mortgage on its corporate headquarters on March 31, 2017 and for other general corporate purposes. Unamortized debt issuance costs and discount related to existing classes of outstanding term loans prior to the 2017 Term Facility Amendment of
$9 million
and
$3 million
, respectively, will continue to be amortized over the remaining term of the Term Loan B along with the Term Loan B discount of
$2 million
. See Note
9. Derivatives
for information regarding the discontinuation of hedge accounting related to our existing interest rate swaps as a result of the 2017 Term Facility Amendment.
On August 23, 2017, Sabre GLBL entered into a Fourth Incremental Term Facility Amendment to our Amended and Restated Credit Agreement, Term Loan A Refinancing Amendment to the Credit Agreement, and Second Revolving Facility Refinancing Amendment to the Credit Agreement to refinance and modify the terms of the 2017 Term Loan B, the 2016 Term Loan A, and the 2016 Revolver, resulting in a reduction of the applicable margins for each of these instruments and approximately a
one
-year extension of the maturity of the 2016 Term Loan A and 2016 Revolver (the “2017 Refinancing”). We incurred no additional indebtedness as a result of the 2017 Refinancing. The 2017 Refinancing included a
$400 million
revolving credit facility ("Revolver") that replaced the 2016 Revolver, as well as the application of the proceeds of the approximately
$1,891 million
incremental Term Loan B facility (“Term Loan B”) and
$570 million
Term Loan A facility (“Term Loan A”) to replace the 2017 Term Loan B and the 2016 Term Loan A. The maturity of the Revolver and the Term Loan A was extended from July 18, 2021 to July 1, 2022. The applicable margins for the Term Loan B were reduced to
2.25%
per annum for Eurocurrency rate loans and
1.25%
per annum for base rate loans. The applicable margins for the Term Loan A and the Revolver were reduced to (i) between
2.50%
and
1.75%
per annum for Eurocurrency rate loans and (ii) between
1.50%
and
0.75%
per annum for base rate loans, in each case with the applicable margin for any quarter reduced by 25 basis points (up to 75 basis points total) if the Senior Secured First-Lien Net Leverage Ratio (as defined in the Amended and Restated Credit Agreement) is less than
3.75
to 1.0,
3.00
to 1.0, or
2.25
to 1.0, respectively.
On March 2, 2018, Sabre GLBL entered into a Fifth Incremental Term Facility Amendment to our Amended and Restated Credit Agreement to refinance and modify the terms of the Term Loan B, resulting in a reduction of the applicable margins for the Term Loan B to
2.00%
per annum for Eurocurrency rate loans and
1.00%
per annum for base rate loans. We incurred no additional indebtedness as a result of this transaction and incurred
$2 million
in financing fees recorded within Other, net and a
$1 million
loss on extinguishment of debt, in our consolidated results of operations year ended
December 31, 2018
.
Under the Amended and Restated Credit Agreement, the loan parties are subject to certain customary non-financial covenants, including certain restrictions on incurring certain types of indebtedness, creation of liens on certain assets, making of certain investments, and payment of dividends, as well as a maximum leverage ratio. Pursuant to Credit Agreement Amendments, effective July 18, 2016, the maximum leverage ratio has been adjusted to be based on the Total Net Leverage Ratio (as defined in the Amended and Restated Credit Agreement) and we are required, at all times (no longer solely when a threshold amount of revolving loans or letters of credit were outstanding), to maintain a Total Net Leverage Ratio of less than
4.5
to 1.0. As of December 31, 2018 we are in compliance with all covenants under the Amended and Restated Credit Agreement.
We had
no balance
outstanding under the Revolver as of
December 31, 2018
or under the 2016 Revolver as of
December 31, 2017
. We had outstanding letters of credit totaling
$15 million
and
$21 million
as of
December 31, 2018
and
2017
, respectively, which reduced our overall credit capacity under the Revolver and 2016 Revolver.
Principal Payments
Principal payments on the Term Loan A are due on a quarterly basis equal to
1.25%
of its initial aggregate principal amount during the first two years of its term and
2.50%
of its initial aggregate principal amount during the next three years of its term. Term Loan B matures on February 22, 2024, and required principal payments in equal quarterly installments of
0.25%
through to the maturity date of which the remaining balance is due. For the year ended December 31, 2018, we made
$47 million
of scheduled principal payments.
We are also required to pay down the term loans by an amount equal to
50%
of annual excess cash flow, as defined in our Amended and Restated Credit Agreement. This percentage requirement may decrease or be eliminated if certain leverage ratios are achieved. Based on our results for the year ended December 31, 2017, we were not required to make an excess cash flow payment in 2018, and no excess cash flow payment is required in 2019 with respect to our results for the year ended December 31, 2018. We are further required to pay down the term loan with proceeds from certain asset sales or borrowings as defined in the Amended and Restated Credit Agreement.
Interest
Borrowings under the Amended and Restated Credit Agreement bear interest at a rate equal to either, at our option: (i) the Eurocurrency rate plus an applicable margin for Eurocurrency borrowings as set forth below, or (ii) a base rate determined by the highest of (1) the prime rate of Bank of America, (2) the federal funds effective rate plus 1/2% or (3) LIBOR plus
1.00%
, plus an applicable margin for base rate borrowings as set forth below. The Eurocurrency rate is based on LIBOR for all U.S. dollar borrowings and has a floor. We have elected the one-month LIBOR as the floating interest rate on all of our outstanding term loans
.
Interest payments are due on the last day of each month as a result of electing one-month LIBOR. Interest on a portion of the outstanding loan is hedged with interest rate swaps (see Note
9. Derivatives
).
|
|
|
|
|
|
Eurocurrency borrowings
|
|
Base rate borrowings
|
|
Applicable Margin
(1)(2)
|
|
Applicable Margin
|
Term Loan A
|
2.00%
|
|
1.00%
|
Term Loan B
|
2.00%
|
|
1.00%
|
Revolver, $400 million
|
2.00%
|
|
1.00%
|
_____________________________
|
|
(1)
|
Applicable margins do not reflect potential step ups and downs of Term Loan A and Revolver,
$400 million
, which are determined by the Senior Secured Leverage Ratio. See below for additional information.
|
|
|
(2)
|
Term Loan A, Term Loan B, and Revolver,
$400 million
, are subject to a
0%
floor.
|
Applicable margins for the Term Loan B are
2.00%
per annum for Eurocurrency rate loans and
1.00%
per annum for base rate loans over the life of the loan and are not dependent on the Senior Secured Leverage Ratio. Applicable margins for the Term Loan A and the Revolver step up by 25 basis points for any quarter if the Senior Secured Leverage Ratio is greater than or equal to
3.00
to 1.0. Applicable margins for the Term Loan A and the Revolver under the Amended and Restated Credit Agreement step down 25 basis points for any quarter if the Senior Secured Leverage Ratio is less than
2.25
to 1.0. In addition, we are required to pay a quarterly commitment fee of
0.250%
per annum for unused Revolver commitments. The commitment fee may increase to
0.375%
per annum if the Senior Secured Leverage Ratio is greater than or equal to
3.00
to 1.0.
Our effective interest rates on borrowings under the Amended and Restated Credit Agreement for the years ended
December 31, 2018
,
2017
and
2016
, inclusive of amounts charged to interest expense, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Including the impact of interest rate swaps
|
4.57
|
%
|
|
4.35
|
%
|
|
4.72
|
%
|
Excluding the impact of interest rate swaps
|
4.36
|
%
|
|
4.03
|
%
|
|
4.55
|
%
|
Senior Secured Notes due 2023
In April 2015, we issued
$530 million
senior secured notes due in April 2023 with a stated interest rate of
5.375%
and received proceeds of
$522 million
, net of underwriting fees and commissions. We used the proceeds to redeem all of the
$480 million
principal of the senior secured notes due 2019, pay the
6.375%
redemption premium of
$31 million
and a make whole premium of
$2 million
, resulting in an extinguishment loss of
$33 million
during the year ended December 31, 2015. The remaining proceeds, combined with cash on hand, were used to pay accrued but unpaid interest of
$19 million
.
In November 2015, we issued
$500 million
senior secured notes due in 2023 with a stated interest rate of
5.25%
. The net proceeds of
$494 million
, net of underwriting fees and commissions, were used to repay
$235 million
of the
$400 million
2016 Notes (as defined below), pay a
$5 million
make-whole premium on the 2016 Notes and pay
$5 million
of accrued but unpaid interest. In addition, we used the net proceeds to repurchase
3,400,000
shares of our common stock totaling
$99 million
. The excess net proceeds, together with cash on hand, were applied to fund the acquisition of the Trust Group, which was completed in January 2016. As a result of the prepayment on the 2016 Notes, we recorded an extinguishment loss of
$6 million
, which includes
$1 million
of unamortized discount and the make-whole premium during the year ended December 31, 2015.
The senior secured notes due 2023 were issued by Sabre GLBL and are guaranteed by Sabre Holdings and each of Sabre GLBL’s existing and subsequently acquired or organized subsidiaries that are borrowers under or guarantors of our senior secured credit facilities. The senior secured notes due 2023 are secured by a first priority security interest in substantially all present and after acquired property and assets of Sabre GLBL and the guarantors of the notes, which also constitutes collateral securing indebtedness under our senior secured facilities on a first priority basis.
Aggregate Maturities
As of
December 31, 2018
, aggregate maturities of our long-term debt were as follows (in thousands):
|
|
|
|
|
|
Amount
|
Years Ending December 31,
|
|
|
2019
|
$
|
68,435
|
|
2020
|
81,304
|
|
2021
|
75,810
|
|
2022
|
389,310
|
|
2023
|
1,048,810
|
|
Thereafter
|
1,768,186
|
|
Total
|
$
|
3,431,855
|
|
9. Derivatives
Hedging Objectives
-We are exposed to certain risks relating to ongoing business operations. The primary risks managed by using derivative instruments are foreign currency exchange rate risk and interest rate risk. Forward contracts on various foreign currencies are entered into to manage the foreign currency exchange rate risk on operational expenditures' exposure denominated in foreign currencies. Interest rate swaps are entered into to manage interest rate risk associated with our floating-rate borrowings.
In accordance with authoritative guidance on accounting for derivatives and hedging, we designate foreign currency forward contracts as cash flow hedges on operational exposure and certain interest rate swaps as cash flow hedges of floating-rate borrowings.
Cash Flow Hedging Strategy
-To protect against the reduction in value of forecasted foreign currency cash flows, we hedge portions of our revenues and expenses denominated in foreign currencies with forward contracts. For example, when the dollar strengthens significantly against the foreign currencies, the decline in present value of future foreign currency expense is offset by losses in the fair value of the forward contracts designated as hedges. Conversely, when the dollar weakens, the increase in the present value of future foreign currency expense is offset by gains in the fair value of the forward contracts.
We enter into interest rate swap agreements to manage interest rate risk exposure. The interest rate swap agreements modify our exposure to interest rate risk by converting floating-rate debt to a fixed rate basis, thus reducing the impact of interest rate changes on future interest expense and net earnings. These agreements involve the receipt of floating rate amounts in exchange for fixed rate interest payments over the life of the agreements without an exchange of the underlying principal amount.
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion and ineffective portions of the gain or loss on the derivative instruments, and the hedge components excluded from the assessment of effectiveness, are reported as a component of other comprehensive income (loss) (“OCI”) and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings. Derivatives not designated as hedging instruments are carried at fair value with changes in fair value reflected in Other, net in the consolidated statement of operations.
Forward Contracts
- In order to hedge our operational expenditures' exposure to foreign currency movements, we are a party to certain foreign currency forward contracts that extend until December 2019. We have designated these instruments as cash flow hedges.
No
hedging ineffectiveness was recorded in earnings relating to the forward contracts during the years ended
December 31, 2018
,
2017
and
2016
. As of
December 31, 2018
, we estimate that
$4 million
in losses will be reclassified from other comprehensive income (loss) to earnings over the next 12 months.
As of
December 31, 2018
and
2017
, we had the following unsettled purchased foreign currency forward contracts that were entered into to hedge our operational exposure to foreign currency movements (in thousands, except for average contract rates):
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Notional Amounts as of December 31, 2018
|
Buy Currency
|
|
Sell Currency
|
|
Foreign Amount
|
|
USD Amount
|
|
Average Contract
Rate
|
Polish Zloty
|
|
US Dollar
|
|
232,500
|
|
|
64,281
|
|
|
0.2765
|
|
Singapore Dollar
|
|
US Dollar
|
|
59,800
|
|
|
44,504
|
|
|
0.7442
|
|
Indian Rupee
|
|
US Dollar
|
|
2,880,000
|
|
|
39,956
|
|
|
0.0139
|
|
British Pound Sterling
|
|
US Dollar
|
|
19,600
|
|
|
26,525
|
|
|
1.3533
|
|
Australian Dollar
|
|
US Dollar
|
|
23,950
|
|
|
17,674
|
|
|
0.7379
|
|
Swedish Krona
|
|
US Dollar
|
|
48,250
|
|
|
5,678
|
|
|
0.1177
|
|
Brazilian Real
|
|
US Dollar
|
|
14,300
|
|
|
3,753
|
|
|
0.2615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Notional Amount as of December 31, 2017
|
Buy Currency
|
|
Sell Currency
|
|
Foreign Amount
|
|
USD Amount
|
|
Average Contract
Rate
|
Polish Zloty
|
|
US Dollar
|
|
225,000
|
|
|
61,016
|
|
|
0.2712
|
|
Singapore Dollar
|
|
US Dollar
|
|
70,750
|
|
|
52,065
|
|
|
0.7359
|
|
British Pound Sterling
|
|
US Dollar
|
|
25,900
|
|
|
34,307
|
|
|
1.3246
|
|
Indian Rupee
|
|
US Dollar
|
|
1,720,000
|
|
|
25,939
|
|
|
0.0151
|
|
Australian Dollar
|
|
US Dollar
|
|
20,750
|
|
|
15,932
|
|
|
0.7678
|
|
Swedish Krona
|
|
US Dollar
|
|
44,100
|
|
|
5,353
|
|
|
0.1214
|
|
Brazilian Real
|
|
US Dollar
|
|
16,800
|
|
|
4,976
|
|
|
0.2962
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap Contracts
—Interest rate swaps outstanding at
December 31, 2018
and matured during the years ended
December 31, 2018
,
2017
and
2016
are as follows:
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
Interest Rate
Received
|
|
Interest Rate Paid
|
|
Effective Date
|
|
Maturity Date
|
Designated as Hedging Instrument
|
|
|
|
|
|
|
$750 million
|
|
1 month LIBOR
(1)
|
|
1.48%
|
|
December 31, 2015
|
|
December 30, 2016
|
$750 million
|
|
1 month LIBOR
(2)
|
|
1.15%
|
|
March 31, 2017
|
|
December 31, 2017
|
$750 million
|
|
1 month LIBOR
(2)
|
|
1.65%
|
|
December 29, 2017
|
|
December 31, 2018
|
$1,350 million
|
|
1 month LIBOR
(2)
|
|
2.27%
|
|
December 31, 2018
|
|
December 31, 2019
|
$1,200 million
|
|
1 month LIBOR
(2)
|
|
2.19%
|
|
December 31, 2019
|
|
December 31, 2020
|
$600 million
|
|
1 month LIBOR
(2)
|
|
2.81%
|
|
December 31, 2020
|
|
December 31, 2021
|
|
|
|
|
|
|
|
|
|
Not Designated as Hedging Instrument
(1)
|
|
|
|
|
|
|
$750 million
|
|
1 month LIBOR
(3)
|
|
2.19%
|
|
December 30, 2016
|
|
December 29, 2017
|
$750 million
|
|
1.18%
|
|
1 month LIBOR
|
|
March 31, 2017
|
|
December 31, 2017
|
$750 million
|
|
1 month LIBOR
(3)
|
|
2.61%
|
|
December 29, 2017
|
|
December 31, 2018
|
$750 million
|
|
1.67%
|
|
1 month LIBOR
|
|
December 29, 2017
|
|
December 31, 2018
|
|
|
(1)
|
Subject to a
1%
floor.
|
|
|
(2)
|
Subject to a
0%
floor.
|
|
|
(3)
|
As of February 22, 2017.
|
As a result of the 2017 Term Facility Amendment in the first quarter of
2017
, we discontinued hedge accounting for our existing swap agreements as of February 22, 2017. Accumulated losses of
$14 million
in other comprehensive income as of the date hedge accounting was discontinued is amortized into interest expense through the maturity date of the respective swap agreements, and interest rate swap payments made are recorded in Other, net in the consolidated statement of operations. Losses reclassified from other comprehensive income to interest expense related to the derivatives that no longer qualified for hedge accounting were fully amortized as of December 31, 2018 and were amortized
$7 million
for each of the years ended
December 31, 2018
and
2017
. We also entered into new interest rate swaps with offsetting terms that are not designated as hedging instruments. Adjustments to the fair value of interest rate swaps not designated as hedging instruments did not have a material impact to our consolidated results of operations for the years ended
December 31, 2018
and
2017
. We had
no
undesignated derivatives as of December 31, 2016.
In connection with the 2017 Term Facility Amendment, we entered into new forward starting interest rate swaps effective March 31, 2017 to hedge the interest payments associated with
$750 million
of the floating-rate 2017 Term Loan B. The total notional amount outstanding is
$750 million
for the full years 2018 and 2019. In September
2017
, we entered into new forward starting interest rate swaps to hedge the interest payments associated with
$750 million
of the floating-rate Term Loan B. The total notional outstanding of
$750 million
becomes effective December 31, 2019 and extends through the full year 2020. In April 2018, we entered into new forward starting interest rate swaps to hedge the interest payments associated with
$600 million
,
$300 million
and
$450 million
of the floating-rate Term Loan B related to full year 2019, 2020 and 2021, respectively. In December 2018, we entered into new forward starting interest rate swaps to hedge the interest payments associated with
$150 million
of the floating-rate Term Loan B for the full years 2020 and 2021. We have designated these swaps as cash flow hedges.
The estimated fair values of our derivatives designated as hedging instruments as of
December 31, 2018
and
2017
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets (Liabilities)
|
|
|
|
|
Fair Value as of December 31,
|
Derivatives Designated as Hedging Instruments
|
|
Consolidated Balance Sheet Location
|
|
2018
|
|
2017
|
Foreign exchange contracts
|
|
Prepaid expenses and other current assets
|
|
—
|
|
|
$
|
6,213
|
|
Foreign exchange contracts
|
|
Other accrued liabilities
|
|
(4,285
|
)
|
|
—
|
|
Interest rate swaps
|
|
Prepaid expenses and other current assets
|
|
3,674
|
|
|
856
|
|
Interest rate swaps
|
|
Other assets, net
|
|
295
|
|
|
3,093
|
|
Total
|
|
|
|
$
|
(316
|
)
|
|
$
|
10,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets (Liabilities)
|
|
|
|
|
Fair Value as of December 31,
|
Derivatives Not Designated as Hedging Instruments
|
|
Consolidated Balance Sheet Location
|
|
2018
|
|
2017
|
Interest rate swaps
|
|
Other accrued liabilities
|
|
$
|
—
|
|
|
$
|
(7,119
|
)
|
Total
|
|
|
|
$
|
—
|
|
|
$
|
(7,119
|
)
|
The effects of derivative instruments, net of taxes, on OCI for the years ended
December 31, 2018
,
2017
and
2016
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (Loss) Gain
Recognized in OCI on Derivative, Effective Portion
|
|
|
Year Ended December 31,
|
Derivatives in Cash Flow Hedging Relationships
|
|
2018
|
|
2017
|
|
2016
|
Foreign exchange contracts
|
|
$
|
(8,250
|
)
|
|
$
|
13,205
|
|
|
$
|
(6,413
|
)
|
Interest rate swaps
|
|
1,907
|
|
|
2,583
|
|
|
(3,446
|
)
|
Total
|
|
$
|
(6,343
|
)
|
|
$
|
15,788
|
|
|
$
|
(9,859
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Loss (Gain) Reclassified from Accumulated
OCI into Income, Effective Portion
|
|
|
|
|
Year Ended December 31,
|
Derivatives in Cash Flow Hedging Relationships
|
|
Income Statement Location
|
|
2018
|
|
2017
|
|
2016
|
Foreign exchange contracts
|
|
Cost of revenue
|
|
$
|
(322
|
)
|
|
$
|
(3,001
|
)
|
|
$
|
1,991
|
|
Interest rate swaps
|
|
Interest Expense, net
|
|
3,999
|
|
|
5,083
|
|
|
2,336
|
|
Total
|
|
|
|
$
|
3,677
|
|
|
$
|
2,082
|
|
|
$
|
4,327
|
|
10. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market for that asset or liability. Guidance on fair value measurements and disclosures establishes a valuation hierarchy for disclosure of inputs used in measuring fair value defined as follows:
Level 1—Inputs are unadjusted quoted prices that are available in active markets for identical assets or liabilities.
Level 2—Inputs include quoted prices for similar assets and liabilities in active markets and quoted prices in non-active markets, inputs other than quoted prices that are observable, and inputs that are not directly observable, but are corroborated by observable market data.
Level 3—Inputs that are unobservable and are supported by little or no market activity and reflect the use of significant management judgment.
The classification of a financial asset or liability within the hierarchy is determined based on the least reliable level of input that is significant to the fair value measurement. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. We also consider the counterparty and our own non-performance risk in our assessment of fair value.
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
Foreign Currency Forward Contracts
—The fair value of the foreign currency forward contracts was estimated based upon pricing models that utilize Level 2 inputs derived from or corroborated by observable market data such as currency spot and forward rates.
Interest Rate Swaps—
The fair value of our interest rate swaps are estimated using a combined income and market-based valuation methodology based upon Level 2 inputs, including credit ratings and forward interest rate yield curves obtained from independent pricing services reflecting broker market quotes.
Pension Plan Assets
—See Note
14. Pension and Other Postretirement Benefit Plans
, for fair value information on our pension plan assets.
The following tables present the fair value of our assets (liabilities) that are required to be measured at fair value on a recurring basis as of
December 31, 2018
and
2017
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at Reporting Date Using
|
|
December 31, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Derivatives:
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
$
|
(4,285
|
)
|
|
$
|
—
|
|
|
$
|
(4,285
|
)
|
|
$
|
—
|
|
Interest rate swap contracts
|
3,969
|
|
|
—
|
|
|
3,969
|
|
|
—
|
|
Total
|
$
|
(316
|
)
|
|
$
|
—
|
|
|
$
|
(316
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at Reporting Date Using
|
|
December 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Derivatives:
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
6,213
|
|
|
—
|
|
|
6,213
|
|
|
—
|
|
Interest rate swap contracts
|
(3,170
|
)
|
|
—
|
|
|
(3,170
|
)
|
|
—
|
|
Total
|
$
|
3,043
|
|
|
$
|
—
|
|
|
$
|
3,043
|
|
|
$
|
—
|
|
There were no transfers between Levels 1 and 2 within the fair value hierarchy for the years ended
December 31, 2018
and
2017
.
Assets that are Measured at Fair Value on a Nonrecurring Basis
As described in Note
1. Summary of Business and Significant Accounting Policies
, our impairment review of goodwill is performed annually, as of October 1 of each year. In addition, goodwill, property and equipment and intangible assets are reviewed for impairment if events and circumstances indicate that their carrying amounts may not be recoverable.
We perform our annual assessment of possible impairment of goodwill as of October 1 of each year. We begin with the qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying value before applying the quantitative goodwill impairment model. If it is determined through the evaluation of events or circumstances that a reporting unit’s fair value is more likely than not greater than its carrying value, the remaining impairment steps are unnecessary. If it is determined that a reporting unit’s fair value is less than its carrying value, the fair values used in our goodwill impairment analysis are estimated using a combined approach based upon discounted future cash flow projections and observed market multiples for comparable businesses. The cash flow projections are based upon Level 3 inputs, including risk adjusted discount rates, future booking and transaction volume levels, future price levels, rates of increase in operating expenses, cost of revenue and taxes. Additionally, in accordance with authoritative guidance on fair value measurements, we make a number of assumptions, including market participants, the principal markets and highest and best use of the reporting units.
Other Financial Instruments
The carrying value of our financial instruments including cash and cash equivalents, and accounts receivable approximates their fair values. The fair values of our senior secured notes due 2023 and term loans under our Amended and Restated Credit Agreement are determined based on quoted market prices for a similar liability when traded as an asset in an active market, a Level 2 input.
The following table presents the fair value and carrying value of all our notes and term loans under our Amended and Restated Credit Agreement as of
December 31, 2018
and
2017
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31,
|
|
Carrying Value
(4)
at December 31,
|
Financial Instrument
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Term Loan A
|
|
$
|
520,000
|
|
|
$
|
559,223
|
|
|
$
|
525,514
|
|
|
$
|
553,444
|
|
Term Loan B
|
|
$
|
1,798,233
|
|
|
1,890,453
|
|
|
1,856,496
|
|
|
1,873,993
|
|
Revolver, $400 million
(3)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
5.375 % Senior Secured Notes Due 2023
|
|
529,799
|
|
|
546,563
|
|
|
530,000
|
|
|
530,000
|
|
5.25% Senior Secured Notes Due 2023
|
|
495,248
|
|
|
512,500
|
|
|
500,000
|
|
|
500,000
|
|
(1)
Excludes net unamortized debt issuance costs.
11. Stock and Stockholders’ Equity
Initial and Secondary Public Offerings
On April 23, 2014, we closed our initial public offering of our common stock in which we sold
39,200,000
shares, and on April 25, 2014, the underwriters exercised in full their overallotment option which resulted in the sale of an additional
5,880,000
shares of our common stock. Our shares of common stock were sold at an initial public offering price of
$16.00
per share, which generated
$672 million
of net proceeds from the offering after deducting underwriting discounts and commissions and offering expenses.
We used the net proceeds from this offering to repay (i)
$296 million
aggregate principal amount of our term loans and (ii)
$320 million
aggregate principal amount of our senior secured notes due in 2019 at a redemption price of
108.5%
of the principal amount. We also used the net proceeds from our offering to pay the
$27 million
redemption premium and
$13 million
in accrued but unpaid interest on the senior secured notes due in 2019. We used the remaining portion of the net proceeds from our offering to pay a
$21 million
fee, in the aggregate, to TPG Global, LLC (“TPG”) and Silver Lake Management Company (“Silver Lake”) pursuant to a management services agreement (the “MSA”), which was thereafter terminated.
During the years ended December 31, 2016 and 2015, certain of our stockholders sold an aggregate of
20,000,000
and
103,970,000
shares, respectively, of our common stock through secondary public offerings. In connection with one of these offerings, we repurchased
3,400,000
shares totaling
$99 million
from the underwriter of the offering during the year ended December 31, 2015. We did not receive any proceeds from the secondary public offerings. During the twelve months ended December 31, 2018, certain of our stockholders sold an aggregate of
69,304,636
shares of our common stock through secondary public offerings. We did not offer any shares or receive any proceeds from these secondary public offerings. Following the secondary public offering of approximately
23,304,636
shares of common stock during the fourth quarter of 2018, existing stockholders affiliated with TPG and Silver Lake (the "Selling Stockholders") no longer held any shares of our common stock
.
In February 2017, we announced the approval of a multi-year share repurchase program to purchase up to
$500 million
of Sabre's common stock outstanding. Repurchases under the program may take place in the open market or privately negotiated transactions.
We repurchased
1,075,255
shares, totaling
$26 million
, and
5,779,769
shares, totaling
$109 million
, of our common stock during the years ended
December 31, 2018
and
2017
, respectively.
Common Stock Dividends
We paid a quarterly cash dividend on our common stock of
$0.14
per share, totaling
$154 million
,
$0.14
per share, totaling
$155 million
, and
$0.13
per share, totaling
$144 million
, during the years ended
December 31, 2018
,
2017
and
2016
, respectively.
Our board of directors has declared a cash dividend of
$0.14
per share of our common stock, which will be paid on
March 29, 2019
to stockholders of record as of
March 21, 2019
.
12. Equity-Based Awards
As of
December 31, 2018
, our outstanding equity-based compensation plans and agreements include the Sovereign Holdings, Inc. Management Equity Incentive Plan (“Sovereign MEIP”), the Sovereign Holdings, Inc. 2012 Management Equity Incentive Plan (“Sovereign 2012 MEIP”), the Sabre Corporation 2014 Omnibus Incentive Compensation Plan (the “2014 Omnibus Plan”), and the Sabre Corporation 2016 Omnibus Incentive Compensation Plan (the “2016 Omnibus Plan”). Our 2016 Omnibus Plan serves as successor to the 2014 Omnibus Plan, the Sovereign MEIP and Sovereign 2012 MEIP and provide for the issuance of stock options, restricted shares, restricted stock units (“RSUs”), performance-based RSU awards (“PSUs”), cash incentive compensation and other stock-based awards. Outstanding awards under the 2014 Omnibus Plan, the Sovereign MEIP and Sovereign 2012 MEIP continue to be subject to the terms and conditions of their respective plan.
We initially reserved
10,000,000
shares and
13,500,000
shares of our common stock for issuance under our 2016 and 2014 Omnibus Plans, respectively. In addition, we added
2,956,465
shares that were reserved but not issued under the Sovereign MEIP and Sovereign 2012 MEIP plans to the 2014 Omnibus Plan reserves, for a total of
16,456,465
authorized shares of common stock for issuance. Time-based options granted under the 2016 and 2014 Omnibus Plans generally vest over a
four
year period with
25%
vesting at the end of year one and the remaining vest quarterly thereafter. RSUs generally vest over a
four
year period with
25%
vesting annually. PSUs generally vest over a
four
year period with
25%
vesting annually dependent upon the achievement of certain company-based performance measures. Each reporting period, we assess the probability of achieving the performance measure and, if there is an adjustment, record the cumulative effect of the adjustment in the current reporting period. Options granted are exercisable for up to
10
years. Stock-based compensation expense totaled
$57 million
,
$45 million
and
$49 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
Long-term cash incentive compensation is provided through the Long-Term Stretch Program (“LTSP”), which was initially adopted under the 2014 Omnibus Plan, for certain senior executives and key employees. The LTSP provides for cash incentive compensation if certain company-based performance measures are achieved over the
three
-year period ending
December 31, 2017
. If these performance measures had been achieved, the cash incentive to be received by the participants would have been determined in part by the average closing price of our common stock in January 2018. As of
December 31, 2017
, the performance measures were not achieved and no amounts were payable under the LTSP.
The fair value of the stock options granted was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Exercise price
|
$
|
22.89
|
|
|
$
|
21.33
|
|
|
$
|
27.12
|
|
Average risk-free interest rate
|
2.72
|
%
|
|
2.10
|
%
|
|
1.81
|
%
|
Expected life (in years)
|
6.11
|
|
|
6.11
|
|
|
6.11
|
|
Implied volatility
|
23.17
|
%
|
|
22.02
|
%
|
|
23.44
|
%
|
Dividend yield
|
2.46
|
%
|
|
2.64
|
%
|
|
1.92
|
%
|
The following table summarizes the stock option award activities under our outstanding equity based compensation plans and agreements for the year ended
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
Quantity
|
|
Exercise Price
|
|
Remaining
Contractual
Term (years)
|
|
Aggregate
Intrinsic Value
(in thousands)
(1)
|
Outstanding at December 31, 2017
|
4,131,835
|
|
|
$
|
19.50
|
|
|
7.6
|
|
$
|
4,136
|
|
Granted
|
1,487,725
|
|
|
22.89
|
|
|
|
|
|
|
Exercised
|
(789,970
|
)
|
|
15.30
|
|
|
|
|
|
|
Cancelled
|
(632,347
|
)
|
|
22.98
|
|
|
|
|
|
|
Outstanding at December 31, 2018
|
4,197,243
|
|
|
$
|
20.80
|
|
|
7.6
|
|
$
|
3,542
|
|
Vested and exercisable at December 31, 2018
|
1,879,291
|
|
|
$
|
18.60
|
|
|
6.0
|
|
$
|
5,713
|
|
______________________
|
|
(1)
|
Aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options awards and the closing price of our common stock of
$21.64
on
December 31, 2018
.
|
For the years ended
December 31, 2018
,
2017
and
2016
, the total intrinsic value of stock options exercised totaled
$6 million
,
$19 million
and
$97 million
, respectively. The weighted-average fair values of options granted were
$4.58
,
$3.67
, and
$5.45
during the years ended
December 31, 2018
,
2017
and
2016
, respectively. As of
December 31, 2018
,
$9 million
in unrecognized compensation expense associated with stock options will be recognized over a weighted-average period of
2.7 years
.
The following table summarizes the activities for our RSUs for the year ended
December 31, 2018
:
|
|
|
|
|
|
|
|
|
Quantity
|
|
Weighted-Average
Grant Date
Fair Value
|
Unvested at December 31, 2017
|
4,709,785
|
|
|
$
|
23.77
|
|
Granted
|
2,948,187
|
|
|
22.56
|
|
Vested
|
(1,338,598
|
)
|
|
22.98
|
|
Cancelled
|
(706,487
|
)
|
|
23.04
|
|
Unvested at December 31, 2018
|
5,612,887
|
|
|
$
|
23.11
|
|
The total fair value of RSUs vested, as of their respective vesting dates, was
$30 million
,
$23 million
, and
$17 million
during the years ended
December 31, 2018
,
2017
and
2016
, respectively. As of
December 31, 2018
, approximately
$91 million
in unrecognized compensation expense associated with RSUs will be recognized over a weighted average period of
2.6 years
.
The following table summarizes the activities for our PSUs for the year ended
December 31, 2018
:
|
|
|
|
|
|
|
|
|
Quantity
|
|
Weighted-Average
Grant Date
Fair Value
|
Unvested at December 31, 2017
|
1,414,221
|
|
|
$
|
23.06
|
|
Granted
|
1,243,349
|
|
|
22.40
|
|
Vested
|
(397,485
|
)
|
|
22.81
|
|
Cancelled
|
(541,315
|
)
|
|
22.87
|
|
Unvested at December 31, 2018
|
1,718,770
|
|
|
$
|
22.60
|
|
The total fair value of PSUs vested, as of their respective vesting dates, was
$9 million
,
$14 million
and
$20 million
during the years ended
December 31, 2018
,
2017
and
2016
, respectively. The recognition of compensation expense associated with PSUs is contingent upon the achievement of annual company-based performance measures. As of
December 31, 2018
, unrecognized compensation expense associated with PSUs totaled
$11 million
,
$10 million
and
$6 million
for the annual measurement periods ending December 31, 2019, 2020 and 2021, respectively.
13. Earnings Per Share
The following table reconciles the numerators and denominators used in the computations of basic and diluted earnings per share from continuing operations (in thousands, expect per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Numerator:
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
$
|
340,921
|
|
|
$
|
249,576
|
|
|
$
|
241,390
|
|
Net income attributable to noncontrolling interests
|
5,129
|
|
|
5,113
|
|
|
4,377
|
|
Net income from continuing operations available to common stockholders, basic and diluted
|
$
|
335,792
|
|
|
$
|
244,463
|
|
|
$
|
237,013
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares outstanding
|
275,235
|
|
|
276,893
|
|
|
277,546
|
|
Dilutive effect of stock options and restricted stock awards
|
2,283
|
|
|
1,427
|
|
|
5,206
|
|
Diluted weighted-average common shares outstanding
|
277,518
|
|
|
278,320
|
|
|
282,752
|
|
Basic earnings per share
|
$
|
1.22
|
|
|
$
|
0.88
|
|
|
$
|
0.85
|
|
Diluted earnings per share
|
$
|
1.21
|
|
|
$
|
0.88
|
|
|
$
|
0.84
|
|
Basic earnings per share are based on the weighted-average number of common shares outstanding during each period. Diluted earnings per share are based on the weighted-average number of common shares outstanding plus the effect of all dilutive common stock equivalents during each period. The calculation of diluted weighted-average shares excludes the impact of
3 million
,
5 million
and
1 million
of anti-dilutive common stock equivalents for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
14. Pension and Other Postretirement Benefit Plans
We sponsor the Sabre Inc. 401(k) Savings Plan (“401(k) Plan”), which is a tax qualified defined contribution plan that allows tax deferred savings by eligible employees to provide funds for their retirement. We make a matching contribution equal to
100%
of each pre-tax dollar contributed by the participant on the first
6%
of eligible compensation. We recognized expenses related to the 401(k) Plan of approximately
$22 million
,
$25 million
and
$23 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
We sponsor the Sabre Inc. Legacy Pension Plan (“LPP”), which is a tax qualified defined benefit pension plan for employees meeting certain eligibility requirements. The LPP was amended to freeze pension benefit accruals as of December 31, 2005, and as a result, no additional pension benefits have been accrued since that date. In April 2008, we amended the LPP to add a lump sum optional form of payment which participants may elect when their plan benefits commence. The effect of the amendment was to decrease the projected benefit obligation by
$34 million
, which is being amortized over
23.5
years, representing the weighted average of the lump sum benefit period and the life expectancy of all plan participants. We also sponsor postretirement benefit plans for certain employees in Canada and Hong Kong.
The following tables provide a reconciliation of the changes in the LPP’s benefit obligations and fair value of assets during the years ended
December 31, 2018
and
2017
, and the unfunded status as of
December 31, 2018
and
2017
(in thousands):
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
Change in benefit obligation:
|
|
|
|
|
|
Benefit obligation at January 1
|
$
|
(459,439
|
)
|
|
$
|
(444,662
|
)
|
Service cost
|
—
|
|
|
—
|
|
Interest cost
|
(17,090
|
)
|
|
(18,731
|
)
|
Actuarial gain (loss), net
|
18,529
|
|
|
(26,169
|
)
|
Benefits paid
|
29,784
|
|
|
30,123
|
|
Benefit obligation at December 31
|
$
|
(428,216
|
)
|
|
$
|
(459,439
|
)
|
Change in plan assets:
|
|
|
|
|
|
Fair value of assets at January 1
|
$
|
347,773
|
|
|
$
|
324,471
|
|
Actual return on plan assets
|
(25,333
|
)
|
|
46,425
|
|
Employer contributions
|
19,800
|
|
|
7,000
|
|
Benefits paid
|
(29,785
|
)
|
|
(30,123
|
)
|
Fair value of assets at December 31
|
$
|
312,455
|
|
|
$
|
347,773
|
|
Unfunded status at December 31
|
$
|
(115,761
|
)
|
|
$
|
(111,666
|
)
|
The actuarial gains, net of
$19 million
for the year ended
December 31, 2018
are attributable to an increase in the discount rate. The actuarial losses, net of
$26 million
for the year ended
December 31, 2017
, are attributable to a decrease in the discount rate, form of payment assumptions, and updates to certain plan participant assumptions.
The net benefit obligation of
$116 million
and
$112 million
as of
December 31, 2018
and
2017
, respectively, is included in other noncurrent liabilities in our consolidated balance sheets.
The amounts recognized in accumulated other comprehensive income (loss) associated with the LPP, net of deferred taxes of
$40 million
and
$58 million
as of
December 31, 2018
and
2017
, respectively, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2018
|
|
2017
|
Net actuarial loss
|
$
|
(151,444
|
)
|
|
$
|
(115,701
|
)
|
Prior service credit
|
11,322
|
|
|
12,433
|
|
Accumulated other comprehensive loss
|
$
|
(140,122
|
)
|
|
$
|
(103,268
|
)
|
The following table provides the components of net periodic benefit costs associated with the LPP and the principal assumptions used in the measurement of the LPP benefit obligations and net benefit costs for the three years ended
December 31, 2018
,
2017
and
2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Interest cost
|
$
|
17,090
|
|
|
$
|
18,731
|
|
|
$
|
20,041
|
|
Expected return on plan assets
|
(18,790
|
)
|
|
(20,934
|
)
|
|
(20,803
|
)
|
Amortization of prior service credit
|
(1,432
|
)
|
|
(1,432
|
)
|
|
(1,432
|
)
|
Amortization of actuarial loss
|
7,362
|
|
|
6,517
|
|
|
5,871
|
|
Net cost
|
$
|
4,230
|
|
|
$
|
2,882
|
|
|
$
|
3,677
|
|
Weighted-average discount rate used to measure benefit obligations
|
4.41
|
%
|
|
3.81
|
%
|
|
4.36
|
%
|
Weighted average assumptions used to determine net benefit cost:
|
|
|
|
|
|
Discount rate
|
3.81
|
%
|
|
4.36
|
%
|
|
4.86
|
%
|
Expected return on plan assets
|
5.75
|
%
|
|
6.50
|
%
|
|
6.50
|
%
|
The following table provides the pre-tax amounts recognized in OCI, including the amortization of the actuarial loss and prior service credit, associated with the LPP for the years ended
December 31, 2018
,
2017
and
2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations Recognized in
|
Year Ended December 31,
|
Other Comprehensive Income
|
2018
|
|
2017
|
|
2016
|
Net actuarial loss
|
$
|
25,595
|
|
|
$
|
679
|
|
|
$
|
27,023
|
|
Amortization of actuarial loss
|
(7,362
|
)
|
|
(6,517
|
)
|
|
(5,871
|
)
|
Amortization of prior service credit
|
1,432
|
|
|
1,432
|
|
|
1,432
|
|
Total (income) loss recognized in other comprehensive income
|
$
|
19,665
|
|
|
$
|
(4,406
|
)
|
|
$
|
22,584
|
|
Total recognized in net periodic benefit cost and other comprehensive income
|
$
|
23,895
|
|
|
$
|
(1,524
|
)
|
|
$
|
26,261
|
|
Our overall investment strategy for the LPP is to provide and maintain sufficient assets to meet pension obligations both as an ongoing business, as well as in the event of termination, at the lowest cost consistent with prudent investment management, actuarial circumstances and economic risk, while minimizing the earnings impact. Diversification is provided by using an asset allocation primarily between equity and debt securities in proportions expected to provide opportunities for reasonable long term returns with acceptable levels of investment risk. Fair values of the applicable assets are determined as follows:
Mutual Fund
—The fair value of our mutual funds are estimated by using market quotes as of the last day of the period.
Common Collective Trusts
—The fair value of our common collective trusts are estimated by using market quotes as of the last day of the period, quoted prices for similar securities and quoted prices in non-active markets.
Real Estate
—The fair value of our real estate funds are derived from the fair value of the underlying real estate assets held by the funds. These assets are initially valued at cost and are reviewed periodically utilizing available market data to determine if the assets held should be adjusted.
The basis for the selected target asset allocation included consideration of the demographic profile of plan participants, expected future benefit obligations and payments, projected funded status of the plan and other factors. The target allocations for LPP assets are
38%
global equities,
58%
long duration fixed income and
4%
real estate. It is recognized that the investment management of the LPP assets has a direct effect on the achievement of its goal. As defined in Note
10. Fair Value Measurements
, the following tables present the fair value of the LPP assets as of
December 31, 2018
, and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2018
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
Common collective trusts:
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income securities
|
$
|
—
|
|
|
$
|
181,156
|
|
|
$
|
—
|
|
|
$
|
181,156
|
|
Global equity securities
|
—
|
|
|
108,152
|
|
|
—
|
|
|
108,152
|
|
Money market mutual fund
|
2,311
|
|
|
—
|
|
|
—
|
|
|
2,311
|
|
Real estate
|
—
|
|
|
—
|
|
|
20,836
|
|
|
20,836
|
|
Total assets at fair value
|
$
|
2,311
|
|
|
$
|
289,308
|
|
|
$
|
20,836
|
|
|
$
|
312,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2017
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total
|
Common collective trusts:
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income securities
|
$
|
—
|
|
|
$
|
191,125
|
|
|
$
|
—
|
|
|
$
|
191,125
|
|
Global equity securities
|
—
|
|
|
134,378
|
|
|
—
|
|
|
134,378
|
|
Money market mutual fund
|
2,815
|
|
|
—
|
|
|
—
|
|
|
2,815
|
|
Real estate
|
—
|
|
|
—
|
|
|
19,455
|
|
|
19,455
|
|
Total assets at fair value
|
$
|
2,815
|
|
|
$
|
325,503
|
|
|
$
|
19,455
|
|
|
$
|
347,773
|
|
The following table provides a rollforward of plan assets valued using significant unobservable inputs (level 3), in thousands:
|
|
|
|
|
|
Real Estate
|
Ending balance at December 31, 2016
|
$
|
18,519
|
|
Contributions
|
279
|
|
Net distributions
|
(279
|
)
|
Advisory fee
|
(200
|
)
|
Net investment income
|
820
|
|
Unrealized gain
|
253
|
|
Net realized loss
|
63
|
|
Ending balance at December 31, 2017
|
19,455
|
|
Contributions
|
307
|
|
Net distributions
|
(307
|
)
|
Advisory fee
|
(198
|
)
|
Net investment income
|
845
|
|
Unrealized gain
|
717
|
|
Net realized gain
|
17
|
|
Ending balance at December 31, 2018
|
$
|
20,836
|
|
We contributed
$20 million
and
$7 million
to fund our defined benefit pension plans during the years ended
December 31, 2018
and
2017
, respectively. Annual contributions to our defined benefit pension plans in the United States, Canada and Hong Kong are based on several factors that may vary from year to year. Our funding practice is to contribute the minimum required contribution as defined by law while also maintaining an
80%
funded status as defined by the Pension Protection Act of 2006. Thus, past contributions are not always indicative of future contributions. Based on current assumptions, we expect to make
$2 million
in contributions to our defined benefit pension plans in
2019
.
The expected long term rate of return on plan assets for each measurement date was selected after giving consideration to historical returns on plan assets, assessments of expected long term inflation and market returns for each asset class and the target asset allocation strategy. We do not anticipate the return of any plan assets to us in
2019
.
We expect the LPP to make the following estimated future benefit payments (in thousands):
|
|
|
|
|
|
Amount
|
2019
|
$
|
26,940
|
|
2020
|
30,090
|
|
2021
|
31,927
|
|
2022
|
31,694
|
|
2023
|
30,627
|
|
2024-2028
|
167,640
|
|
15. Commitments and Contingencies
Lease Commitments
We lease certain facilities under long term operating leases. Certain of our lease agreements contain renewal options, early termination options and/or payment escalations based on fixed annual increases, local consumer price index changes or market rental reviews. We recognize rent expense with fixed rate increases and/or fixed rent reductions on a straight line basis over the term of the lease. We lease approximately
1.4 million
square feet of office space in
90
locations in
49
countries. For the years ended
December 31, 2018
,
2017
and
2016
, we recognized rent expense of
$30 million
,
$32 million
and
$26 million
, respectively. Future minimum lease payments under non-cancelable operating leases are as follows (in thousands):
|
|
|
|
|
|
Amount
|
2019
|
$
|
27,171
|
|
2020
|
18,350
|
|
2021
|
12,438
|
|
2022
|
9,029
|
|
2023
|
6,149
|
|
Thereafter
|
13,429
|
|
Total
|
$
|
86,566
|
|
Legal Proceedings
While certain legal proceedings and related indemnification obligations to which we are a party specify the amounts claimed, these claims may not represent reasonably possible losses. Given the inherent uncertainties of litigation, the ultimate outcome of these matters cannot be predicted at this time, nor can the amount of possible loss or range of loss, if any, be reasonably estimated, except in circumstances where an aggregate litigation accrual has been recorded for probable and reasonably estimable loss contingencies. A determination of the amount of accrual required, if any, for these contingencies is made after careful analysis of each matter. The required accrual may change in the future due to new information or developments in each matter or changes in approach such as a change in settlement strategy in dealing with these matters.
Antitrust Litigation and Investigations
US Airways Antitrust Litigation
In April 2011, US Airways filed suit against us in federal court in the Southern District of New York, alleging violations of the Sherman Act Section 1 (anticompetitive agreements) and Section 2 (monopolization). The complaint was filed fewer than two months after we entered into a new distribution agreement with US Airways. In September 2011, the court dismissed all claims relating to Section 2. The claims that were not dismissed are claims brought under Section 1 of the Sherman Act, relating to our contracts with US Airways, which US Airways claims contain anticompetitive provisions, and an alleged conspiracy with the other GDSs, allegedly to maintain the industry structure and not to compete for content. We strongly deny all of the allegations made by US Airways.
Sabre filed summary judgment motions in April 2014. In January 2015, the court issued an order granting Sabre's summary judgment motions in part, eliminating a majority of US Airways' alleged damages and rejecting its request for injunctive relief by which US Airways sought to bar Sabre from enforcing certain provisions in our contracts. In September 2015, the court also dismissed US Airways' claim for declaratory relief. In February 2017, US Airways sought reconsideration of the court's opinion dismissing the claim for declaratory relief, which the court denied in March 2017.
The trial on the remaining claims commenced in October 2016. In December 2016, the jury issued a verdict in favor of US Airways with respect to its claim under Section 1 of the Sherman Act regarding Sabre's contract with US Airways and awarded it
$5 million
in single damages. The jury rejected US Airways' claim alleging a conspiracy with the other GDSs. We continue to believe that our business practices and contract terms are lawful. In January 2017, we filed a motion seeking judgment as a matter of law in favor of Sabre on the one claim on which the jury found for US Airways, which the court denied in March 2017.
Based on the jury’s verdict, in March 2017 the court entered final judgment in favor of US Airways in the amount of
$15 million
, which is three times the jury’s award of
$5 million
as required by the Sherman Act.
In April 2017, we filed an appeal with the United States Court of Appeals for the Second Circuit seeking a reversal of the judgment. US Airways also filed a counter-appeal challenging earlier court orders, including the above-referenced orders dismissing and/or issuing summary judgment as to portions of its claims and damages. In connection with this appeal, we posted an appellate bond equal to the aggregate amount of the
$15 million
judgment entered plus interest, which stayed the judgment pending the appeal. The Second Circuit heard oral arguments on this matter in December 2018.
As a result of the jury's verdict, US Airways is also entitled to receive reasonable attorneys’ fees and costs under the Sherman Act. As such, it filed a motion seeking approximately
$125 million
in attorneys’ fees and costs, the amount of which we strongly dispute. In January 2018, the court denied US Airways' motion seeking attorneys' fees and costs, based on the fact that the appeal of the underlying judgment remains pending, as discussed above. The court's denial of the motion was without prejudice, and US Airways may refile the motion if it prevails on the appeal.
In the fourth quarter of 2016, we accrued a loss of
$32 million
, which represents the court's final judgment of
$15 million
, plus our estimate of
$17 million
for US Airways' reasonable attorneys’ fees, expenses and costs. We are unable to estimate the exact amount of the loss associated with the verdict, but we estimate that there is a range of outcomes between
$32 million
and
$65 million
, inclusive of the trebled damage award of approximately
$15 million
. No amount within the range is considered a better estimate than any other amount within the range and therefore, the minimum within the range was recorded in selling, general and administrative expense during 2016. As noted above, the amount of attorneys' fees and costs to be awarded is subject to conclusion of the appellate process and, if US Airways ultimately prevails on the appeal, final decision by the trial court, which may itself be appealed. The ultimate resolution of this matter may be greater or less than the amount recorded and, if greater, could adversely affect our results of operations. We have and will incur significant fees, costs and expenses for as long as the lawsuit, including any appeal, is ongoing. In addition, litigation by its nature is highly uncertain and fraught with risk, and it is therefore difficult to predict the outcome of any particular matter, including any appeal or changes to our business that may be required as a result of the litigation. Depending on the outcome of the litigation, any of these consequences could have a material adverse effect on our business, financial condition and results of operations.
Lawsuit on Antitrust Claims
In July 2015, a putative class action lawsuit was filed against us and two other GDSs, in the United States District Court for the Southern District of New York. The plaintiffs, who are asserting claims on behalf of a putative class of consumers in various states, are generally alleging that the GDSs conspired to negotiate for full content from the airlines, resulting in higher ticket prices for consumers, in violation of various federal and state laws. The plaintiffs sought an unspecified amount of damages in connection with their state law claims, and they requested injunctive relief in connection with their federal claim. In July 2016, the court granted, in part, our motion to dismiss the lawsuit, finding that plaintiffs’ state law claims are preempted by federal law, thereby precluding their claims for damages. The court declined to dismiss plaintiffs’ claim seeking an injunction under federal antitrust law. The plaintiffs may appeal the court’s dismissal of their state law claims upon a final judgment. In August 2018, the plaintiffs sought leave from the court to withdraw their motion for class certification. In October 2018, the court denied the plaintiffs’ motion for class certification with prejudice. The case is now proceeding on an individual basis only. We believe that the losses associated with this case are neither probable nor estimable and therefore have not accrued any losses as of December 31, 2018. We may incur significant fees, costs and expenses for as long as this litigation is ongoing. We intend to vigorously defend against the remaining claims.
European Commission’s Directorate-General for Competition ("DG Comp") Investigation
On November 23, 2018, the DG Comp announced that it has opened an investigation to assess whether our agreements with airlines and travel agents may restrict competition in breach of European Union antitrust rules. We intend to fully cooperate with the DG Comp’s investigation and are unable to make any prediction regarding its outcome at this time. There is no legal deadline for the DG Comp to bring an antitrust investigation to an end, and the duration of the investigation is uncertain. Depending on the findings of the DG Comp, the outcome of the investigation could have a material adverse effect on our business, financial condition and results of operations. We may incur significant fees, costs and expenses for as long as this investigation is ongoing. We intend to vigorously defend against any allegations of anticompetitive activity by the DG Comp.
Department of Justice Investigation
On May 19, 2011, we received a civil investigative demand (“CID”) from the U.S. Department of Justice (“DOJ”) investigating alleged anticompetitive acts related to the airline distribution component of our business. We are fully cooperating with the DOJ investigation and are unable to make any prediction regarding its outcome. The DOJ is also investigating other companies that own GDSs, and has sent CIDs to other companies in the travel industry. Based on its findings in the investigation, the DOJ may (i) close the file, (ii) seek a consent decree to remedy issues it believes violate the antitrust laws, or (iii) file suit against us for violating the antitrust laws, seeking injunctive relief. If injunctive relief were granted, depending on its scope, it could affect the manner in which our airline distribution business is operated and potentially force changes to the existing airline distribution business model. Any of these consequences would have a material adverse effect on our business, financial condition and results of operations. We have not received any communications from the DOJ regarding this matter for several years; however, we have not been notified that this matter is closed.
Indian Income Tax Litigation
We are currently a defendant in income tax litigation brought by the Indian Director of Income Tax (“DIT”) in the Supreme Court of India. The dispute arose in 1999 when the DIT asserted that we have a permanent establishment within the meaning of the Income Tax Treaty between the United States and the Republic of India and accordingly issued tax assessments for assessment years ending March 1998 and March 1999, and later issued further tax assessments for assessment years ending March 2000 through March 2006. The DIT has continued to issue further tax assessments on a similar basis for subsequent years; however, the tax assessments for assessment years ending March 2007 and later are no longer material. We appealed the tax assessments for assessment years ending March 1998 through March 2006 and the Indian Commissioner of Income Tax Appeals returned a mixed verdict. We filed further appeals with the Income Tax Appellate Tribunal (“ITAT”). The ITAT ruled in our favor on June 19, 2009 and July 10, 2009, stating that no income would be chargeable to tax for assessment years ending March 1998 and March 1999, and from March 2000 through March 2006. The DIT appealed those decisions to the Delhi High Court, which found in our favor on July 19, 2010. The DIT has appealed the decision to the Supreme Court of India. Our case has been listed for hearing with the Supreme Court, and it has not yet been presented. We have appealed the tax assessments for the assessment years ended March 2013 to March 2016 with the ITAT and no trial date has been set for these subsequent years.
In addition, SAPPL is currently a defendant in similar income tax litigation brought by the DIT. The dispute arose when the DIT asserted that SAPPL has a permanent establishment within the meaning of the Income Tax Treaty between Singapore and India and accordingly issued tax assessments for assessment years ending March 2000 through March 2005. SAPPL appealed the tax assessments, and the Indian Commissioner of Income Tax (Appeals) returned a mixed verdict. SAPPL filed further appeals with the ITAT. The ITAT ruled in SAPPL’s favor, finding that no income would be chargeable to tax for assessment years ending March 2000 through March 2005. The DIT appealed those decisions to the Delhi High Court. No hearing date has been set. The DIT also assessed taxes on a similar basis for assessment years ending March 2006 through March 2014 and appeals for assessment years ending March 2006 through 2014 are pending before the ITAT.
If the DIT were to fully prevail on every claim against us, including SAPPL, we could be subject to taxes, interest and penalties of approximately
$42 million
as of
December 31, 2018
. We intend to continue to aggressively defend against each of the foregoing claims. Although we do not believe that the outcome of the proceedings will result in a material impact on our business or financial condition, litigation is by its nature uncertain. We do not believe this outcome is more likely than not and therefore have not made any provisions or recorded any liability for the potential resolution of any of these claims.
Indian Service Tax Litigation
SAPPL's Indian subsidiary is also subject to litigation by the India Director General (Service Tax) ("DGST"), which has assessed the subsidiary for multiple years related to its alleged failure to pay service tax on marketing fees and reimbursements of expenses. Indian courts have returned verdicts favorable to the Indian subsidiary. The DGST has appealed the verdict to the Indian Supreme Court. We do not believe that an adverse outcome is probable and therefore have not made any provisions or recorded any liability for the potential resolution of any of these claims.
Litigation Relating to Routine Proceedings
We are also engaged from time to time in other routine legal and tax proceedings incidental to our business. We do not believe that any of these routine proceedings will have a material impact on the business or our financial condition.
Other
Air Berlin
In November 2017, in connection with Air Berlin’s insolvency proceedings, we requested that Air Berlin make an election under the German Insolvency Act on whether to perform or terminate its contract with us. In January 2018, Air Berlin notified us by letter that it was exercising its right under the German Insolvency Act to terminate its contract with us. In addition, Air Berlin’s letter alleged various breaches by us of the contract and asserted that it had suffered a significant amount of damages associated with its claims. Air Berlin has not commenced any formal action with respect to its claims. We believe that losses associated with these claims are neither probable nor estimable and therefore have not accrued any losses as of
December 31, 2018
. We may incur significant fees, costs and expenses for as long as this matter is ongoing. We intend to vigorously defend against these claims.
SynXis Central Reservation System
As previously disclosed, we became aware of an incident involving unauthorized access to payment information contained in a subset of hotel reservations processed through the Sabre Hospitality Solutions SynXis Central Reservation System (the “HS Central Reservation System”). Our investigation was supported by third party experts, including a leading cybersecurity firm. Our investigation determined that an unauthorized party obtained access to account credentials that permitted access to a subset of hotel reservations processed through the HS Central Reservation System; used the account credentials to view a credit card summary page on the HS Central Reservation System and access payment card information (although we use encryption, this credential had the right to see unencrypted card data); and first obtained access to payment card information and some other reservation information on August 10, 2016. The last access to payment card information was on March 9, 2017. The unauthorized party was able to access information for certain hotel reservations, including cardholder name; payment card number; card expiration date; and, for a subset of reservations, card security code. The unauthorized party was also able, in some cases, to access certain information such as guest name(s), email, phone number, address, and other information if provided to the HS Central Reservation System. Information such as Social Security, passport, or driver’s license number was not accessed. The investigation did not uncover forensic evidence that the unauthorized party removed any information from the system, but it is a possibility. We took successful measures to ensure this unauthorized access to the HS Central Reservation System was stopped and is no longer possible. There is no indication that any of our systems beyond the HS Central Reservation System, such as Sabre’s Airline Solutions and Travel Network platforms, were affected or accessed by the unauthorized party. We notified law enforcement and the payment card brands and, engaged a PCI forensic investigator to investigate this incident at the payment card brands' request. We have notified customers and other companies that use or interact with, directly or indirectly, the HS Central Reservation System about the incident. We are also cooperating with various governmental authorities that are investigating this incident. Separately, in November 2017, Sabre Hospitality Solutions observed a pattern of activity that, after further investigation, led it to believe that an unauthorized party improperly obtained access to certain hotel user credentials for purposes of accessing the HS Central Reservation System. We deactivated the compromised accounts and notified law enforcement of this activity. We also notified the payment card brands, and at their request, we have engaged a PCI forensic investigator to investigate this incident. We have not found any evidence of a breach of the network security of the HS Central Reservation System, and we believe that the number of affected reservations represents only a fraction of 1% of the bookings in the HS Central Reservation System. Although the costs related to these incidents, including any associated penalties assessed by any governmental authority or payment card brand or indemnification obligations to our customers, as well as any other impacts or remediation related to this incident, may be material, it is not possible at this time to determine whether we will incur, or to reasonably estimate the amount of, any liabilities in connection with them. We maintain insurance that covers certain aspects of cyber risks, and we continue to work with our insurance carriers in these matters.
Other Tax Matters
We pay and collect Value Added Tax (“VAT”) in most countries in which we operate related to the procurement of goods and services or the sale of services within the normal course of our business. We establish VAT receivables for the collection of refunds, which are subject to audit and collection risks in various countries. As of
December 31, 2018
, we have approximately
$20 million
in VAT receivables resulting from claims with the Greek government beginning in 2014, which we have paid and are entitled to recover as a refund. The Greek tax authorities have audited our refund claims for 2014 and 2015 totaling
$8 million
. Their audit reports issued in October 2018 rejected the recoverability of these refund claims and instead claimed additional tax, penalties and interest due of
$4 million
, which we were required to pay in November 2018. We intend to vigorously defend our positions including litigation, if necessary. In the event our appeals result in an adverse ruling, claims for years subsequent to 2015 may not be collectible and any prior refunds received may potentially be reversed to the extent the applicable statute of limitations has not expired. We do not believe that an adverse outcome is probable with respect to Greek tax authorities’ claims for the amounts recently assessed and therefore have not accrued any losses for the potential resolution of any of these claims; however, we may incur expenses in future periods including litigation costs and pre-payment of a portion of the tax amount in order to defend our position.
We operate in a number of jurisdictions in which the taxing authorities may challenge our tax positions including both income and non-income based taxes. We routinely receive inquires, and may receive tax assessments in these additional foreign jurisdictions and we recognize liabilities with respect to non-income based taxes when we believe it’s probable that amounts will be owed to the taxing authorities and such amounts are estimable. We continue to defend against any and all such material claims as presented and may be required to prepay assessed amounts. As of
December 31, 2018
, we have not accrued any material amounts for probable exposure related to such contingencies. If our positions are ultimately rejected it could have a material impact to our results of operations.
16. Segment Information
Our reportable segments are based upon our internal organizational structure; the manner in which our operations are managed; the criteria used by our Chief Executive Officer, who is our Chief Operating Decision Maker ("CODM"), to evaluate segment performance; the availability of separate financial information; and overall materiality considerations. Effective the first quarter of 2018, our business has
three
reportable segments: (i) Travel Network, (ii) Airline Solutions and (iii) Hospitality Solutions. In conjunction with this change, we have modified the methodology we have historically used to allocate shared corporate technology costs. Each segment now reflects a portion of our shared corporate costs that historically were not allocated to a business unit, based on relative consumption of shared technology infrastructure costs and defined revenue metrics. These changes have no impact on our consolidated results of operations, but result in a decrease of individual segment profitability only.
Our CODM utilizes Adjusted Gross Profit, Adjusted Operating Income and Adjusted EBITDA as the measures of profitability to evaluate performance of our segments and allocate resources. Corporate includes a technology organization that provides development and support activities to our segments. The majority of costs associated with our technology organization are allocated to the segments primarily based on the segments' usage of resources. Benefit expenses, facility costs and depreciation expense on the corporate headquarters building are allocated to the segments based on headcount. Unallocated corporate costs include certain shared expenses such as accounting, finance, human resources, legal, corporate systems, amortization of acquired intangible assets, impairment and related charges, stock-based compensation, restructuring charges, legal reserves and other items not identifiable with one of our segments.
We account for significant intersegment transactions as if the transactions were with third parties, that is, at estimated current market prices. The majority of the intersegment revenues and cost of revenues are fees charged by Travel Network to Hospitality Solutions for airline trips booked through our GDS.
Our CODM does not review total assets by segment as operating evaluations and resource allocation decisions are not made on the basis of total assets by segment.
The performance of our segments is evaluated primarily on Adjusted Gross Profit, Adjusted Operating Income and Adjusted EBITDA which are not recognized terms under GAAP. Our uses of Adjusted Gross Profit, Adjusted Operating Income and Adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.
We define Adjusted Gross Profit as operating income adjusted for selling, general and administrative expenses, impairment and related charges, the cost of revenue portion of depreciation and amortization, restructuring and other costs, amortization of upfront incentive compensation, and stock-based compensation included in cost of revenue.
We define Adjusted Operating Income as operating income adjusted for joint venture equity income, impairment and related charges, acquisition-related amortization, restructuring and other costs, acquisition-related costs, litigation (reimbursements) costs and stock-based compensation.
We define Adjusted EBITDA as income from continuing operations adjusted for impairment and related charges, depreciation and amortization of property and equipment, amortization of capitalized implementation costs, acquisition-related amortization, amortization of upfront incentive consideration, interest expense, net, loss on extinguishment of debt, other, net, restructuring and other costs, acquisition-related costs, litigation costs (reimbursements), net, stock-based compensation and provision for income taxes.
Segment information for the years ended
December 31, 2018
,
2017
and
2016
is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Revenue
|
|
|
|
|
|
Travel Network
|
$
|
2,806,194
|
|
|
$
|
2,550,470
|
|
|
$
|
2,374,849
|
|
Airline Solutions
|
822,747
|
|
|
816,008
|
|
|
794,637
|
|
Hospitality Solutions
|
273,079
|
|
|
258,352
|
|
|
224,669
|
|
Eliminations
|
(35,064
|
)
|
|
(26,346
|
)
|
|
(20,768
|
)
|
Total revenue
|
$
|
3,866,956
|
|
|
$
|
3,598,484
|
|
|
$
|
3,373,387
|
|
Adjusted Gross Profit
(a)
|
|
|
|
|
|
|
|
|
Travel Network
|
$
|
1,098,052
|
|
|
$
|
1,071,249
|
|
|
$
|
1,039,561
|
|
Airline Solutions
|
355,079
|
|
|
366,255
|
|
|
354,922
|
|
Hospitality Solutions
|
83,333
|
|
|
88,477
|
|
|
72,497
|
|
Corporate
|
(15,056
|
)
|
|
(25,795
|
)
|
|
(6,305
|
)
|
Total
|
$
|
1,521,408
|
|
|
$
|
1,500,186
|
|
|
$
|
1,460,675
|
|
Adjusted Operating Income
(b)
|
|
|
|
|
|
Travel Network
|
$
|
755,811
|
|
|
$
|
746,625
|
|
|
$
|
738,134
|
|
Airline Solutions
|
111,146
|
|
|
137,932
|
|
|
136,177
|
|
Hospitality Solutions
|
12,881
|
|
|
9,670
|
|
|
16,807
|
|
Corporate
|
(178,406
|
)
|
|
(188,078
|
)
|
|
(170,757
|
)
|
Total
|
$
|
701,432
|
|
|
$
|
706,149
|
|
|
$
|
720,361
|
|
Adjusted EBITDA
(c)
|
|
|
|
|
|
|
|
|
Travel Network
|
$
|
951,709
|
|
|
$
|
923,615
|
|
|
$
|
886,630
|
|
Airline Solutions
|
293,577
|
|
|
296,437
|
|
|
286,362
|
|
Hospitality Solutions
|
52,824
|
|
|
42,784
|
|
|
39,964
|
|
Total segments
|
1,298,110
|
|
|
1,262,836
|
|
|
1,212,956
|
|
Corporate
|
(173,720
|
)
|
|
(184,265
|
)
|
|
(166,310
|
)
|
Total
|
$
|
1,124,390
|
|
|
$
|
1,078,571
|
|
|
$
|
1,046,646
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
Travel Network
|
$
|
118,276
|
|
|
$
|
109,579
|
|
|
$
|
92,772
|
|
Airline Solutions
|
182,431
|
|
|
158,505
|
|
|
150,185
|
|
Hospitality Solutions
|
39,943
|
|
|
33,114
|
|
|
23,157
|
|
Total segments
|
340,650
|
|
|
301,198
|
|
|
266,114
|
|
Corporate
|
72,694
|
|
|
99,673
|
|
|
147,872
|
|
Total
|
$
|
413,344
|
|
|
$
|
400,871
|
|
|
$
|
413,986
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
Travel Network
|
$
|
64,943
|
|
|
$
|
90,881
|
|
|
$
|
97,798
|
|
Airline Solutions
|
98,374
|
|
|
116,948
|
|
|
126,558
|
|
Hospitality Solutions
|
39,160
|
|
|
43,443
|
|
|
42,404
|
|
Total segments
|
202,477
|
|
|
251,272
|
|
|
266,760
|
|
Corporate
|
81,463
|
|
|
65,165
|
|
|
60,887
|
|
Total
|
$
|
283,940
|
|
|
$
|
316,437
|
|
|
$
|
327,647
|
|
|
|
(a)
|
The following table sets forth the reconciliation of Adjusted Gross Profit to operating income in our statement of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Adjusted Gross Profit
|
$
|
1,521,408
|
|
|
$
|
1,500,186
|
|
|
$
|
1,460,675
|
|
Less adjustments:
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
513,526
|
|
|
510,075
|
|
|
626,153
|
|
Impairment and related charges
(7)
|
—
|
|
|
81,112
|
|
|
—
|
|
Cost of revenue adjustments:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
(1)
|
341,653
|
|
|
317,812
|
|
|
287,353
|
|
Amortization of upfront incentive consideration
(2)
|
77,622
|
|
|
67,411
|
|
|
55,724
|
|
Restructuring and other costs
(4)
|
—
|
|
|
12,604
|
|
|
12,660
|
|
Stock-based compensation
|
26,591
|
|
|
17,732
|
|
|
19,213
|
|
Operating income
|
$
|
562,016
|
|
|
$
|
493,440
|
|
|
$
|
459,572
|
|
|
|
(b)
|
The following table sets forth the reconciliation of Adjusted Operating Income to operating income in our statement of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Adjusted Operating income
|
$
|
701,432
|
|
|
$
|
706,149
|
|
|
$
|
720,361
|
|
Less adjustments:
|
|
|
|
|
|
Joint venture equity income
|
2,556
|
|
|
2,580
|
|
|
2,780
|
|
Impairment and related charges
(7)
|
—
|
|
|
81,112
|
|
|
—
|
|
Acquisition-related amortization
(1c)
|
68,008
|
|
|
95,860
|
|
|
143,425
|
|
Restructuring and other costs
(4)
|
—
|
|
|
23,975
|
|
|
18,286
|
|
Acquisition-related costs
(5)
|
3,266
|
|
|
—
|
|
|
779
|
|
Litigation (reimbursements) costs
(6)
|
8,323
|
|
|
(35,507
|
)
|
|
46,995
|
|
Stock-based compensation
|
57,263
|
|
|
44,689
|
|
|
48,524
|
|
Operating income
|
$
|
562,016
|
|
|
$
|
493,440
|
|
|
$
|
459,572
|
|
|
|
(c)
|
The following table sets forth the reconciliation of Adjusted EBITDA to income from continuing operations in our statement of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Adjusted EBITDA
|
$
|
1,124,390
|
|
|
$
|
1,078,571
|
|
|
$
|
1,046,646
|
|
Less adjustments:
|
|
|
|
|
|
|
|
|
Impairment and related charges
(7)
|
—
|
|
|
81,112
|
|
|
—
|
|
Depreciation and amortization of property and equipment
(1a)
|
303,612
|
|
|
264,880
|
|
|
233,303
|
|
Amortization of capitalized implementation costs
(1b)
|
41,724
|
|
|
40,131
|
|
|
37,258
|
|
Acquisition-related amortization
(1c)
|
68,008
|
|
|
95,860
|
|
|
143,425
|
|
Amortization of upfront incentive consideration
(2)
|
77,622
|
|
|
67,411
|
|
|
55,724
|
|
Interest expense, net
|
157,017
|
|
|
153,925
|
|
|
158,251
|
|
Loss on extinguishment of debt
|
633
|
|
|
1,012
|
|
|
3,683
|
|
Other, net
(3)
|
8,509
|
|
|
(36,530
|
)
|
|
(27,617
|
)
|
Restructuring and other costs
(4)
|
—
|
|
|
23,975
|
|
|
18,286
|
|
Acquisition-related costs
(5)
|
3,266
|
|
|
—
|
|
|
779
|
|
Litigation (reimbursements) costs
(6)
|
8,323
|
|
|
(35,507
|
)
|
|
46,995
|
|
Stock-based compensation
|
57,263
|
|
|
44,689
|
|
|
48,524
|
|
Provision for income taxes
(8)
|
57,492
|
|
|
128,037
|
|
|
86,645
|
|
Income from continuing operations
|
$
|
340,921
|
|
|
$
|
249,576
|
|
|
$
|
241,390
|
|
________________________
|
|
(1)
|
Depreciation and amortization expenses (see Note
1. Summary of Business and Significant Accounting Policies
for associated asset lives):
|
|
|
a.
|
Depreciation and amortization of property and equipment includes software developed for internal use.
|
|
|
b.
|
Amortization of capitalized implementation costs represents amortization of upfront costs to implement new customer contracts under our SaaS and hosted revenue model.
|
|
|
c.
|
Acquisition-related amortization represents amortization of intangible assets from the take-private transaction in 2007 as well as intangibles associated with acquisitions since that date.
|
|
|
(2)
|
Our Travel Network business at times provides upfront incentive consideration to travel agency subscribers at the inception or modification of a service contract, which are capitalized and amortized to cost of revenue over an average expected life of the service contract, generally over
three
to
five
years. This consideration is made with the objective of increasing the number of clients or to ensure or improve customer loyalty. These service contract terms are established such that the supplier and other fees generated over the life of the contract will exceed the cost of the incentive consideration provided up front. These service contracts with travel agency subscribers require that the customer commit to achieving certain economic objectives and generally have terms requiring repayment of the upfront incentive consideration if those objectives are not met.
|
|
|
(3)
|
I
n
2018, Other, net, includes an expense of
$5 million
related to our liability under the Tax Receivable Agreement ("TRA") offset by a gain of
$8 million
on the sale of an investment. In 2017, we recognized a benefit of
$60 million
due to a reduction to our liability under the TRA primarily due to a provisional adjustment resulting from the enactment of TCJA which reduced the U.S. corporate income tax rate (see Note
7. Income Taxes
), offset by a loss of
$15 million
related to debt modification costs associated with a debt refinancing. In 2016, we recognized a gain of
$15 million
from the sale of our available-for-sale marketable securities, and a
$6 million
gain associated with the receipt of an earn-out payment from the sale of a business in 2013. In addition, all periods presented include foreign exchange gains and losses related to the remeasurement of foreign currency denominated balances included in our consolidated balance sheets into the relevant functional currency.
|
|
|
(4)
|
Restructuring and other costs represents charges associated with business restructuring and associated changes implemented which resulted in severance benefits related to employee terminations, integration and facility opening or closing costs and other business reorganization costs. We recorded
$25 million
and
$20 million
in charges associated with an announced action to reduce our workforce in 2017 and 2016, respectively. These reductions aligned our operations with business needs and implemented an ongoing cost and organizational structure consistent with our expected growth needs and opportunities. In 2015, we recognized a restructuring charge of
$9 million
associated with the integration of Abacus, and reduced that estimate by
$4 million
in 2016, as a result of the reevaluation of our plan derived from a shift in timing and strategy of originally contemplated actions. As of December 31, 2018, our actions under these activities have been substantially completed and payments under the plan have been made.
|
|
|
(5)
|
Acquisition-related costs represent fees and expenses incurred associated with the 2018 agreement to acquire Farelogix, which is anticipated to close in 2019, and in 2016, the acquisition of the Trust Group and Airpas Aviation. See Note
3. Acquisitions
.
|
|
|
(6)
|
Litigation costs (reimbursements), net represent charges associated with antitrust and other foreign non-income tax contingency matters. In 2018, we recorded non-income tax expense of
$5 million
for tax, penalties and interest associated with certain non-income tax claims for historical periods regarding permanent establishment in a foreign jurisdiction. In 2017, we recorded a
$43 million
reimbursement, net of accrued legal and related expenses, from a settlement with our insurance carriers with respect to the American Airlines litigation. In 2016, we recorded an accrual of
$32 million
representing the trebling of the jury award plus our estimate of attorneys’ fees, expenses and costs in the US Airways litigation. See Note
15. Commitments and Contingencies
.
|
|
|
(7)
|
Impairment and related charges represents an
$81 million
impairment charge recorded in 2017 associated with net capitalized contract costs related to an Airline Solutions' customer based on our analysis of the recoverability of such amounts. See Note
4. Impairment and Related Charges
for additional information.
|
|
|
(8)
|
The tax impact on net income adjustments includes the tax effect of each separate adjustment based on the statutory tax rate for the jurisdiction(s) in which the adjustment was taxable or deductible, and the tax effect of items that relate to tax specific financial transactions, tax law changes, uncertain tax positions and other items
.
In 2018, the provision for income taxes includes a benefit of
$27 million
related to the enactment of the TCJA for deferred taxes and foreign tax effects. In 2017, provision for income taxes includes a provisional impact of
$47 million
recognized as a result of the enactment of the TCJA in December 2017. See Note
7. Income Taxes
.
|
A significant portion of our revenue is generated through transaction-based fees that we charge to our customers. For Travel Network, this fee is in the form of a transaction fee for bookings on our GDS; for Airline Solutions and Hospitality Solutions, this fee is a recurring usage-based fee for the use of our SaaS and hosted systems, as well as implementation fees and professional service fees. Transaction-based revenue accounted for approximately
95%
of our Travel Network revenue for each of the years ended
December 31, 2018
,
2017
and
2016
. Transaction-based revenue accounted for approximately
81%
,
74%
and
70%
for the years ended
December 31, 2018
,
2017
and
2016
, respectively, of our Airline Solutions revenue. Transaction-based revenue accounted for approximately
81%
,
83%
and
79%
for the years ended
December 31, 2018
,
2017
and
2016
, respectively, of our Hospitality Solutions revenue.
All joint venture equity income relates to Travel Network.
Our revenues and long-lived assets, excluding goodwill and intangible assets, by geographic region are summarized below. Revenue of our Travel Network business is attributed to countries based on the location of the travel supplier. For Airline Solutions and Hospitality Solutions, revenue is attributed to countries based on the location of the customer.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
Revenue:
|
|
|
|
|
|
|
|
|
United States
|
$
|
1,346,895
|
|
|
$
|
1,340,893
|
|
|
$
|
1,257,685
|
|
Europe
|
928,533
|
|
|
777,406
|
|
|
699,168
|
|
APAC
|
820,711
|
|
|
715,740
|
|
|
657,465
|
|
All other
|
770,817
|
|
|
764,445
|
|
|
759,069
|
|
Total
|
$
|
3,866,956
|
|
|
$
|
3,598,484
|
|
|
$
|
3,373,387
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2018
|
|
2017
|
Long-lived assets
|
|
|
|
|
|
United States
|
$
|
773,739
|
|
|
$
|
776,102
|
|
APAC
|
7,254
|
|
|
11,468
|
|
Europe
|
3,735
|
|
|
3,939
|
|
All other
|
5,644
|
|
|
7,685
|
|
Total
|
$
|
790,372
|
|
|
$
|
799,194
|
|
17. Quarterly Financial Information (Unaudited)
A summary of our quarterly financial results for the years ended
December 31, 2018
and
2017
is presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
Revenue
|
$
|
988,369
|
|
|
$
|
984,376
|
|
|
$
|
970,283
|
|
|
$
|
923,928
|
|
Operating income
|
165,401
|
|
|
138,833
|
|
|
136,763
|
|
|
121,019
|
|
Income (loss) from continuing operations
|
90,449
|
|
|
92,565
|
|
|
70,879
|
|
|
87,028
|
|
(Loss) income from discontinued operations, net of tax
|
(1,207
|
)
|
|
760
|
|
|
3,664
|
|
|
(1,478
|
)
|
Net income (loss)
|
89,242
|
|
|
93,325
|
|
|
74,543
|
|
|
85,550
|
|
Net income (loss) attributable to common stockholders
|
87,880
|
|
|
92,246
|
|
|
73,005
|
|
|
84,400
|
|
Net income (loss) per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
0.32
|
|
|
0.33
|
|
|
0.26
|
|
|
0.31
|
|
Diluted
|
0.32
|
|
|
0.33
|
|
|
0.26
|
|
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2017
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
Revenue
|
$
|
915,353
|
|
|
$
|
900,663
|
|
|
$
|
900,606
|
|
|
$
|
881,862
|
|
Operating income
|
163,326
|
|
|
18,718
|
|
|
176,796
|
|
|
134,600
|
|
Income from continuing operations
|
77,722
|
|
|
(4,152
|
)
|
|
92,825
|
|
|
83,181
|
|
Income (loss) from discontinued operations, net of tax
|
(477
|
)
|
|
(1,222
|
)
|
|
(529
|
)
|
|
296
|
|
Net income
|
77,245
|
|
|
(5,374
|
)
|
|
92,296
|
|
|
83,477
|
|
Net income attributable to common stockholders
|
75,939
|
|
|
(6,487
|
)
|
|
90,989
|
|
|
82,090
|
|
Net income per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
0.28
|
|
|
(0.02
|
)
|
|
0.33
|
|
|
0.30
|
|
Diluted
|
0.27
|
|
|
(0.02
|
)
|
|
0.33
|
|
|
0.30
|
|